<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Form 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended September 30, 1996
--------------------------------------
( ) Transition report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the Transition period from _________________ to ____________________
State Auto Financial Corporation
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1324304
________________________________ ________________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
518 East Broad Street, Columbus, Ohio 43215-3976
- -------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
(614) 464-5000
- -------------------------------------------------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(X) Yes ( ) No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common shares, without par value 18,086,712
- -------------------------------- -----------------------------
(CLASS) (OUTSTANDING ON 11/08/96)
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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page Number
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<S> <C> <C>
PART I - Financial Information
Condensed Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Earnings -
For the three months ended September 30, 1996 and 1995 4
For the nine months ended September 30, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows -
For the nine months ended September 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Results of Operations
and Financial Condition 8-10
PART II - Other Information 11-12
</TABLE>
2
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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
ASSETS 1996 1995
------------ -----------
(unaudited) (Note 1)
<S> <C> <C>
Fixed maturities:
Held for investment, at amortized cost $ 91,782,988 $ 91,528,968
(fair value $91,572,549 and $93,939,778, respectively)
Available for sale, at fair value 279,942,482 278,318,510
(amortized cost $275,461,397 and $263,820,502, respectively)
------------ -----------
Total investments 371,725,470 369,847,478
Cash and cash equivalents 13,854,826 11,227,375
Deferred policy acquisition costs 16,515,138 15,866,092
Accrued investment income and other assets 13,384,317 13,167,739
Net prepaid pension expense 10,243,302 9,384,680
Reinsurance recoverable 9,014,222 9,277,494
Prepaid reinsurance premiums 3,394,139 3,169,925
Current federal income taxes 112,698 -
Deferred federal income taxes 1,087,586 -
Property and equipment, net 2,574,349 2,555,376
------------ -----------
Total assets $441,906,047 $434,496,159
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Losses and loss expenses payable $168,466,651 $170,575,325
Unearned premiums 93,654,803 90,107,566
Current federal income taxes - 565,431
Deferred federal income taxes - 2,334,170
Due to affiliates 2,303,133 795,696
Other liabilities 1,697,835 1,865,599
------------ -----------
Total liabilities 266,122,422 266,243,787
------------ -----------
STOCKHOLDERS' EQUITY
Common stock, without par value. Authorized 30,000,000
shares; 18,086,712 and 18,025,375 shares issued and outstanding,
respectively, at stated value of $5 per share 90,433,560 90,126,878
Additional paid-in capital 1,055,645 681,672
Net unrealized holding gains 3,386,053 9,964,824
Retained earnings 80,908,367 67,478,998
------------ -----------
Stockholders' equity 175,783,625 168,252,372
------------ -----------
Total liabilities and stockholders' equity $441,906,047 $434,496,159
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
(unaudited) (unaudited)
<S> <C> <C>
Earned premiums (net of ceded earned premiums of
$2,885,414 and $2,791,709 respectively) $60,239,698 $58,498,571
Net investment income 5,999,047 5,846,066
Management services income 1,997,413 1,908,928
Net realized gains on investments 255,031 176,422
----------- -----------
Total revenues 68,491,189 66,429,987
----------- -----------
Losses and loss expenses (net of ceded losses and loss
expenses of $1,365,509 and $515,967, respectively) 46,506,377 40,972,473
Acquisition and operating expenses 16,926,697 16,408,900
Other expense, net 528,080 760,073
----------- -----------
Total expenses 63,961,154 58,141,446
----------- -----------
Earnings before federal income taxes 4,530,035 8,288,541
Federal income tax expense:
Current 753,934 759,797
Deferred 116,113 1,069,574
----------- -----------
Total federal income taxes 870,047 1,829,371
----------- -----------
Net earnings $ 3,659,988 $ 6,459,170
=========== ===========
Weighted average common shares outstanding 18,086,725 17,976,395
=========== ===========
Net earnings per common share $ 0.20 $ 0.36
=========== ===========
Dividends paid per common share $ 0.040 $ 0.037
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Nine Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
Earned premiums (net of ceded earned premiums of
$8,366,487 and $8,373,180, respectively) $179,035,250 $ 173,733,760
Net investment income 17,866,113 16,859,475
Management services income 6,004,448 5,649,304
Net realized gains on investments 1,292,268 997,446
------------ -------------
Total revenues 204,198,079 197,239,985
------------ -------------
Losses and loss expenses (net of ceded losses and loss
expenses of $3,602,614 and $3,452,770, respectively) 133,475,120 118,822,510
Acquisition and operating expenses 49,853,520 50,200,308
Other expense, net 1,991,341 1,630,430
------------ -------------
Total expenses 185,319,981 170,653,248
------------ -------------
Earnings before federal income taxes 18,878,098 26,586,737
Federal income tax expense (benefit):
Current 4,639,650 7,058,443
Deferred 121,186 (56,115)
------------ -------------
Total federal income taxes 4,760,836 7,002,328
------------ -------------
Net earnings $ 14,117,262 $ 19,584,409
============ =============
Weighted average common shares outstanding 18,058,226 17,943,303
============ =============
Net earnings per common share $ 0.78 $ 1.09
============ =============
Dividends paid per common share $ 0.113 $ 0.103
============ =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $14,117,262 $19,584,409
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization, net 565,676 412,963
Change in deferred policy acquisition costs (649,046) (529,604)
Change in accrued investment income and other assets (216,578) (3,437,313)
Change in net prepaid pension expense (858,622) (658,902)
Change in other liabilities and due to/from affiliate, net 1,340,653 1,015,365
Change in reinsurance recoverable and prepaid reinsurance premiums 39,058 343,569
Change in losses and loss expenses payable (2,108,674) 2,490,128
Change in unearned premiums 3,547,237 5,114,663
Change in federal income taxes (556,943) (1,541,487)
Net realized gains on investments (1,311,672) (997,446)
----------- ------------
13,908,351 21,796,345
Cash provided from the change in the reinsurance pool participation
percentages - 46,061,226
----------- ------------
Net cash provided by operating activities 13,908,351 67,857,571
----------- ------------
Cash flows from investing activities:
Purchase of fixed maturities - held to maturity (9,073,770) (12,397,245)
Purchase of fixed maturities - available for sale (100,746,601) (112,656,833)
Maturities, calls and principal reductions of fixed maturities -
held to maturity 8,612,448 2,974,988
Maturities, calls and principal reductions of fixed maturities -
available for sale 2,024,908 1,341,458
Sale of fixed maturities - available for sale 88,011,016 50,911,516
Net additions of property and equipment (101,663) (7,590)
----------- ------------
Net cash used in investing activities (11,273,662) (69,833,706)
----------- ------------
Cash flows from financing activities:
Net proceeds from sale of common stock 680,655 531,368
Payment of dividends (687,893) (615,595)
----------- ------------
Net cash used in financing activities (7,238) (84,227)
----------- ------------
Net increase (decrease) in cash and cash equivalents 2,627,451 (2,060,362)
Cash and cash equivalents at beginning of period 11,227,375 11,955,234
----------- ------------
Cash and cash equivalents at end of period $13,854,826 $9,894,872
=========== ============
Supplemental disclosures:
Federal income taxes paid $5,317,779 $8,543,815
=========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1996
(unaudited)
1. BASIS OF PRESENTATION
The financial statements for the interim periods included herein have been
prepared by the Company without audit; however, such information reflects all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These financial statements should be read in conjunction
with the financial statements and notes thereto for the year ended December 31,
1995 included in the Company's 1995 Annual Report filed with the Securities and
Exchange Commission on Form 10-K.
The results of operations for the interim periods presented are not necessarily
indicative of the operating results that may be expected for the full fiscal
year ending December 31, 1996.
2. NET EARNINGS PER COMMON SHARE
Net earnings per common share is computed on the basis of the weighted average
number of common shares outstanding during each of the respective periods
presented. Additional shares arising from the assumed exercise of employee and
director stock options were not included in the computations as the dilutive
effect was not material.
3. STOCK SPLIT
On May 30, 1996, the Board of Directors of the Company authorized a
three-for-two stock split to be effected in the form of a stock dividend,
payable July 8, 1996 to shareholders of record on June 17, 1996. The stated
value for the additional shares issued was transferred from additional paid-in
capital and retained earnings to common stock and is reflected retroactively in
the accompanying condensed consolidated financial statements. Common shares
issued and outstanding, weighted average shares and per share data are restated
for periods presented in the accompanying condensed consolidated financial
statements.
4. REINSURANCE
Effective July 1, 1996, the State Auto Group (State Auto P&C, Mutual, Milbank
and National) negotiated a change in its catastrophe reinsurance program. In the
event the State Auto Group incurs catastrophe losses in excess of $120.0
million, the Company entered into a structured contingent financing transaction
with Chase Manhattan Bank ("Chase") to provide up to $100.0 million. Under this
arrangement, in the event of such a loss, the Company would sell redeemable
preferred shares to SAF Funding Corporation, a special purpose company ("SPC"),
which will borrow the money necessary for such purchase from Chase and a
syndicate of other lenders. The Company will contribute to State Auto P&C the
proceeds from the sale of its preferred shares. State Auto P&C has assumed
catastrophe reinsurance from Mutual, Milbank and National pursuant to a
catastrophe reinsurance agreement in the amount of $100.0 million excess of
$120.0 million. State Auto P&C will use the contributed capital to pay its
direct catastrophe losses and losses assumed under the catastrophe reinsurance
agreement. The Company is obligated to repay the SPC by redeeming the preferred
shares over a six year period. This layer of $100.0 million in excess of $120.0
has been excluded from the pooling agreement.
In addition, the Company's obligation to repay Chase has been secured by a Put
Agreement among the Company, Mutual and the Lenders, under which, in the event
of a default by the Company, as described in the Credit Agreement or in the Put
Agreement, Mutual would be obligated to put either the preferred shares or the
loan(s) outstanding.
5. RECLASSIFICATIONS
Certain items in the 1995 condensed consolidated financial statements have been
reclassified to conform with the 1996 presentation.
7
<PAGE> 8
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Results
of Operations and Financial Condition
Results of Operations
- ---------------------
Earnings before Federal income taxes decreased $3.8 million to $4.5 million for
the three months ended September 30, 1996 from the same 1995 period. Losses in
Raleigh, North Carolina from the effects of Hurricane Fran and additional loss
development from spring storms contributed to this decrease. For the nine months
ended September 30, 1996, earnings before Federal income taxes decreased $7.7
million to $18.9 million from the same 1995 period. Winter storm losses from the
first quarter combined with hailstorm losses in Kentucky in the second quarter
and the weather related losses in the third quarter contributed to the nine
month decrease. In spite of these catastrophe claims experienced during the
first nine months of 1996, the pricing and underwriting strategies of the
Company have done much to mitigate the impact of these storms. The GAAP combined
ratio, i.e., losses and loss expenses plus acquisition and operating expenses,
as a percentage of earned premiums, increased to 105.3% for the quarter ended
September 30, 1996 from 98.1% for the same period in 1995 and for the nine
months ended September 30, 1996, increased to 102.4% from 97.3% for the same
period in 1995.
Earned premiums increased $1.7 million to $60.2 million for the quarter ended
September 30, 1996 and $5.3 million to $179.0 million for the nine months ended
September 30, 1996, from the same 1995 periods. Direct written premiums for
commercial lines of business increased approximately 8.8% and 9.4% from the same
three month and nine month periods, respectively, in 1995. Personal lines of
business, except for State Auto National Insurance Company's ("National")
non-standard auto products, has been experiencing no growth. National's direct
written premiums increased approximately 37% for the quarter ended September 30,
1996 from the same 1995 period and 41% for the nine months ended September 30,
1996 from the same 1995 period. Without foregoing the current underwriting gains
achieved through past actions, management is continually reviewing current
strategies and developing new ones to enhance personal lines sales. During 1996,
State Automobile Mutual Insurance Company ("Mutual") and State Auto Property &
Casualty Insurance Company ("State Auto P&C") entered its 23rd state of
operation, Oklahoma, and intends to enter its 24th state, Wisconsin, in 1997
with the recent announcement by the Company's principal stockholder, Mutual, of
its intent to purchase Midwest Security Insurance Company, Onalaska, Wisconsin.
The purchase is targeted for closing in January 1997, subject to regulatory and
Board approval of a stock purchase agreement. Additionally, the pooled companies
(Mutual, State Auto P&C, and Milbank Insurance Company ("Milbank")) are
introducing several new products to its agents during the fourth quarter of 1996
and into 1997. Additionally, National currently operates in five states and is
about to enter three new states, Georgia, Arkansas and Minnesota.
Net investment income increased $0.2 million to $6.0 million for the quarter
ended September 30, 1996 and $1.0 million to $17.9 million for the nine months
ended September 30, 1996, from the same 1995 periods. An increase in invested
assets over the same 1995 periods contributed to these increases. Total
amortized cost of invested assets at September 30, 1996 was $367.2 million
compared to $347.4 million at September 30, 1995. The investment yield decreased
to 6.26% and 6.24% for the quarter and nine months ended September 30, 1996
compared to 6.55% and 6.48% for the same 1995 periods, respectively.
Management services income increased slightly to $2.0 million for the quarter
ended September 30, 1996 and $0.4 million to $6.0 million for the nine months
ended September 30, 1996 from the same 1995 periods. These increases are due to
increases in the fees generated from both investment and management services
from the same periods in 1995.
8
<PAGE> 9
Losses and loss expenses, as a percentage of earned premiums, increased to 77.2%
for the quarter ended September 30, 1996 from 70.0% for the same 1995 period and
for the nine months ended September 30, 1996, increased to 74.6% from 68.4% for
the same 1995 period. As previously discussed, the Company experienced property
damage claims in Raleigh, North Carolina resulting from Hurricane Fran as well
as additional loss development on second quarter spring storms. The losses
resulting from these catastrophe claims added 10.3 points to the current quarter
GAAP losses and loss expense ratio. For the nine months ended September 30,
1996, winter storm losses from the first quarter of 1996, combined with the
hailstorm activity of the second quarter and Hurricane Fran in the current
quarter added 7.4 points to the nine month GAAP losses and loss expense ratio.
Acquisition and operating expenses, as a percentage of earned premiums, for the
third quarter 1996 remained comparable to 1995 levels at 28.1% and for the nine
months ended September 30, 1996, decreased to 27.8% from 28.9% for the same 1995
period. The decrease in the ratios for 1996 is due primarily to the decrease in
the amount of Quality Performance Bonus earned by nearly all permanent employees
of the State Auto Group (Mutual, State Auto P&C, Milbank and National) in 1996
compared to the same periods in 1995.
Decrease in other expenses of $0.2 million to $0.5 million for the quarter ended
September 30, 1996 is primarily due to the State Auto Group changing the
catastrophe portion of its reinsurance treaty beginning July 1, 1996, that prior
to this period was accounted for as deposit reinsurance (See Liquidity and
Capital Resources). Expenses associated with the catastrophe portion of the
treaty accounted for as deposit reinsurance were included in miscellaneous
expense. Increase in other expenses of $0.4 million to $2.0 million for the nine
months ended September 30, 1996 from the same periods in 1995, is due to the
increased expense activity incurred by the Company's software subsidiary,
Strategic Insurance Software, Inc. (SIS). SIS operations began July 1, 1995.
Federal income taxes decreased $0.9 million to $0.9 million for the quarter
ended September 30, 1996 and $2.2 million to $4.8 million for the nine months
ended September 30, 1996 from the same periods in 1995. These decreases are due
to the decrease in taxable income as a result of the increased levels of
catastrophe losses in 1996 compared to the same periods in 1995.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities decreased to $13.9 million for the
nine months ended September 30, 1996 from $67.9 million for the same 1995
period. This decrease is primarily due to the fact that on January 1, 1995,
$46.0 million was transferred to State Auto P&C, in connection with the amended
pooling arrangement. Net cash used in investing activities decreased to $11.3
million for the nine months ended September 30, 1996 from $69.8 million for the
same 1995 period. This change is due to the investing of the $46.0 million
associated with the pooling change. As of September 30, 1996, funds consisting
of cash and cash equivalents available for general operations were $13.9 million
compared to $9.9 million at September 30, 1995. No long-term fixed maturities
were required to be sold to meet financial obligations during the first nine
months of 1996.
Effective July 1, 1996, the State Auto Group negotiated a change in its
catastrophe reinsurance program. The amount retained by the State Auto Group is
$40.0 million for each occurrence, an increase of $20.0 million over the prior
program. For up to $80.0 million in losses, excess of $40.0 million, traditional
reinsurance coverage is provided. In the event the State Auto Group incurs
catastrophe losses in excess of $120.0 million, State Auto Financial Corp.
("STFC") entered into a structured contingent financing transaction with Chase
Manhattan Bank ("Chase") to provide up to $100.0 million. Under this
arrangement, in the event of such a loss, STFC would sell redeemable preferred
shares to SAF Funding Corporation, a special purpose company ("SPC"), which will
borrow the money necessary for such purchase from Chase and a syndicate of other
lenders. STFC will contribute to State Auto P&C the
9
<PAGE> 10
proceeds from the sale of its preferred shares. State Auto P&C has assumed
catastrophe reinsurance from Mutual, Milbank and National pursuant to a
catastrophe reinsurance agreement in the amount of $100.0 million excess of
$120.0 million. State Auto P&C will use the contributed capital to pay its
direct catastrophe losses and losses assumed under the catastrophe reinsurance
agreement. STFC is obligated to repay the SPC (which will repay the lenders) by
redeeming the preferred shares over a six year period. This layer of $100.0
million in excess of $120.0 has been excluded from the pooling agreement as well
by virtue of an Amended and Restated Reinsurance Pooling Agreement.
In addition, STFC's obligation to repay Chase has been secured by a Put
Agreement among STFC, Mutual and the Lenders, under which, in the event of a
default by STFC as described in the Credit Agreement or in the Put Agreement,
Mutual would be obligated to put either the preferred shares or the loan(s)
outstanding.
The Board of Directors declared a quarterly cash dividend of $0.04 per common
share payable on September 30, 1996, to shareholders of record on September 13,
1996. Additionally, at its May 30, 1996, Annual Meeting, the Board of Directors
declared a three-for-two stock split, effected in the form of a stock dividend,
payable July 8, 1996, to shareholders of record on June 17, 1996. All per share
figures have been adjusted to reflect the stock split.
The Company had no material commitments for capital expenditures as of September
30, 1996.
10
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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders - None
Item 5. Other Information - None
<TABLE>
INDEX TO EXHIBITS
<CAPTION>
Item 6. a. Exhibits
Exhibit No. Description of Exhibits Page No.
----------- ----------------------- --------
<S> <C> <C> <C>
10(Y) Amended and Restated Reinsurance
Pooling Agreement between State
Automobile Mutual Insurance
Company, State Auto Property and
Casualty Insurance Company and
Milbank Insurance Company effective
July 1, 1996
10(Z) Property Catastrophe Overlying
Excess of Loss Reinsurance Contract
between State Automobile Mutual
Insurance Company, Milbank
Insurance Company, State Auto
National Insurance Company and
State Auto Property and Casualty
Insurance Company dated July 1, 1996
10(AA) Credit Agreement between SAF
Funding Corporation and The Chase
Manhattan Bank dated August 16, 1996
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits Page No.
----------- ----------------------- --------
<S> <C> <C> <C>
10(BB) Put Agreement between State
Automobile Mutual Insurance
Company, State Auto Financial
Corporation and The Chase Manhattan
Bank dated August 16, 1996
10(CC) Standby Purchase Agreement between
State Auto Financial Corporation
and SAF Funding Corporation dated
August 16, 1996
27 Financial data schedules
b. Reports on Form 8-K - None
</TABLE>
12
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
STATE AUTO FINANCIAL CORPORATION
Date: NOVEMBER 12, 1996 /s/ Urlin G. Harris, Jr.
------------------------------------
Urlin G. Harris, Jr.
Treasurer and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
<PAGE> 1
EXHIBIT 10(Y)
AMENDED AND RESTATED REINSURANCE
POOLING AGREEMENT BETWEEN
STATE AUTOMOBILE MUTUAL INSURANCE COMPANY,
STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY
AND MILBANK INSURANCE COMPANY
EFFECTIVE JULY 1, 1996
<PAGE> 2
AMENDED AND RESTATED
REINSURANCE POOLING AGREEMENT
This Amended and Restated Reinsurance Pooling Agreement (the
"Agreement"), effective as of 12:01 a.m., Eastern Daylight Savings Time, July 1,
1996, is between and among State Automobile Mutual Insurance Company, 518 East
Broad Street, Columbus, Ohio (hereinafter referred to as "State Auto Mutual")
and State Auto Property and Casualty Insurance Company, 112 Main Street, Greer,
South Carolina (hereinafter referred to as "State Auto P&C"), and Milbank
Insurance Company, East Highway 12, Milbank, South Dakota (hereinafter referred
to as "Milbank"). (State Auto Mutual, State Auto P&C and Milbank are herein
collectively referred to as the "State Auto Insurance Companies" or "Group").
BACKGROUND INFORMATION
The members of the Group have determined that the underwriting
operations of the Group should be conducted by State Auto Mutual on behalf of
the Group which has been effected through the Amended and Restated Management
Agreement dated April 1, 1994, and by means of mutual reinsurance on a
percentage basis as herein provided.
State Auto Mutual and State Auto P&C originally entered into an
intercompany Reinsurance Agreement effective as of 12:01 a.m., January 1, 1987
(the "Reinsurance Agreement").
The Reinsurance Agreement has since been amended by an Addendum
effective January 1, 1987, adding an insolvency and arbitration provisions; by
Amendment Number 1 effective as of January 1, 1992 amending the pooling
percentages from 20% State Auto P&C - 80% State Auto Mutual to 30% and 70%
respectively; by Amendment Number 2 effective as of January 1, 1991 excluding
post retirement health care benefits as a pooled expense and as of January 1,
1994 excluding post employment benefits liability as a pooled expense; and by
Amendment Number 3 effective as of January 1, 1995 adding Milbank as a party and
adjusting the pooling percentages as follows: State Auto P&C 35%, State Auto
Mutual 55% and Milbank 10%.
The Reinsurance Agreement requires an additional amendment effective as
of July 1, 1996, to exclude from its scope catastrophic loss claims and loss
adjustment expenses incurred by State Auto Mutual, State Auto P&C and Milbank in
the amount of $100,000,000 in excess of $120,000,000 of such losses and loss
adjustment expense and the premiums for such exposure.
The parties desire to amend and restate the Reinsurance Agreement to
provide for the continuation of the pooling arrangement it effects, including
the above-described previous amendments and the additional amendment.
STATEMENT OF AGREEMENT
In consideration of the mutual covenants set forth herein and INTENDING
TO BE LEGALLY BOUND HEREBY, the parties hereto hereby agree as follows:
DEFINITIONS:
1. As used in this Agreement:
<PAGE> 3
Page 2
a. "Net Liabilities" shall mean all direct liabilities plus
reinsurance assumed minus reinsurance ceded, except as otherwise
expressly excluded below.
b. "Net Premiums" shall mean all direct premiums plus
reinsurance assumed minus reinsurance ceded, except as otherwise
expressly excluded below.
c. "Respective Percentage" shall be:
As to Milbank 10%
As to State Auto P&C 35%
As to State Auto Mutual 55%
2. CESSION:
(a) STATE AUTO P&C CESSION: State Auto Mutual hereby reinsures
and assumes and State Auto P&C hereby cedes and transfers to
State Auto Mutual all Net Liabilities incurred under or in
connection with all contracts and policies of insurance issued by
State Auto P&C outstanding and in force as of and subsequent to
12:01 a.m. Eastern Daylight Savings Time, July 1, 1996. Such
liabilities shall include State Auto P&C's reserves for unearned
premiums, outstanding losses and loss expenses (including
unreported losses) and all other outstanding underwriting and
administrative expenses as evidenced by State Auto P&C's books
and records at the close of business on June 30, 1996, but shall
not include intercompany balances, liabilities incurred in
connection with the investment transactions of State Auto P&C,
liabilities for dividends to stockholders declared and unpaid,
other liabilities not incurred in connection with underwriting
operations, post retirement health care benefits liability, and
post employment benefits liability. It is further agreed State
Auto Mutual shall receive the Net Premiums for said contracts and
policies.
(b) MILBANK CESSION: State Auto Mutual hereby reinsures and
assumes and Milbank hereby cedes and transfers to State Auto
Mutual all Net Liabilities incurred under or in connection with
all contracts and policies of insurance issued by Milbank
outstanding and in force as of and subsequent to 12:01 a.m. EDST,
July 1, 1996. Such liabilities shall include Milbank's reserves
for unearned premiums, outstanding losses and loss expenses
(including unreported losses) and all other outstanding
underwriting and administrative expenses as evidenced by
Milbank's books and records at the close of business on June 30,
1996, but shall not include intercompany balances, liabilities
incurred in connection with the investment transactions of
Milbank, liabilities for dividends to stockholders declared and
unpaid, other liabilities not incurred in connection with
underwriting operations, post retirement health care benefits
liability, and post employment benefits liability. It is further
<PAGE> 4
Page 3
agreed that State Auto Mutual shall receive the Net Premiums for
said contracts and policies.
3. ASSETS TRANSFER TO STATE AUTO MUTUAL:
(a) STATE AUTO P&C: In consideration of the agreements herein
contained, State Auto P&C hereby agrees that there has been or
will be assigned and transferred to State Auto Mutual an amount,
in cash or other assets, equal to the aggregate of all
liabilities of State Auto P&C assumed by State Auto Mutual under
paragraph 2(a) hereof, less a ceding commission equal to the sum
of the acquisition expenses associated with the unearned premium
reserves which are transferred as provided herein. There have
been included among the assets assigned and transferred to State
Auto Mutual by State Auto P&C all of the right, title and
interest of State Auto P&C in and to all assets relative to the
underwriting operations of State Auto P&C, due or that became
due, as evidenced by its books and records at the close of
business on June 30, 1996, not including investments, accrued
investment income, intercompany balances and bank deposits.
(b) MILBANK: In consideration of the agreements herein contained,
Milbank hereby agrees that there has been or will be assigned and
transferred to State Auto Mutual an amount, in cash or other
assets, equal to the aggregate of all liabilities of Milbank
assumed by State Auto Mutual under paragraph 2(b) hereof, less a
ceding commission equal to the sum of the acquisition expenses
associated with the unearned premium reserves which are
transferred as provided herein. There shall be included among the
assets assigned and transferred to State Auto Mutual by Milbank
all of the right, title and interest of Milbank in and to all
assets relative to the underwriting operations of Milbank due or
that may become due as evidenced by its books and records at the
close of business on June 30, 1996 not including investments,
accrued investment income, intercompany balances and bank
deposits.
4. ASSUMPTION OF REINSURANCE:
(a) STATE AUTO P&C: State Auto P&C hereby reinsures and assumes
and State Auto Mutual hereby cedes and transfers to State Auto
P&C its Respective Percentage of all Net Liabilities under all
contracts and policies of insurance, (including those ceded by
State Auto P&C and reinsured by State Auto Mutual as provided in
paragraph 2(a)), on which State Auto Mutual is subject to
liability and which are outstanding and in force on or after the
effective date hereof.
Such liabilities shall include reserves for unearned premiums,
outstanding losses (including unreported losses) and loss expenses and
all other underwriting and
<PAGE> 5
Page 4
administrative expenses, but shall not include intercompany balances,
liabilities for federal income taxes, liabilities incurred in
connection with investment transactions, liabilities for dividends to
stockholders declared and unpaid, other liabilities not incurred in
connection with underwriting operations, post retirement health care
benefits liability and post employment benefits liability.
(b) MILBANK: Milbank hereby reinsures and assumes and State Auto
Mutual hereby cedes and transfers to Milbank its Respective
Percentage of all Net Liabilities under all contracts and
policies of insurance, (including those ceded by Milbank and
reinsured by State Auto Mutual as provided in paragraph 2(b)), on
which State Auto Mutual is subject to liability and which are
outstanding and in force on or after the effective date hereof.
Such liabilities shall include reserves for unearned premiums,
outstanding losses (including unreported losses) and loss expenses and
all other underwriting and administrative expenses, but shall not
include intercompany balances, liabilities for federal income taxes,
liabilities incurred in connection with investment transactions,
liabilities for dividends to stockholders declared and unpaid, other
liabilities not incurred in connection with underwriting operations,
post retirement health care benefits liability and post employment
benefits liability.
5. ASSET TRANSFER BY STATE AUTO MUTUAL:
(a) STATE AUTO P&C: In consideration of the agreements herein
contained, State Auto Mutual hereby agrees that there has been or
will be assigned and transferred to State Auto P&C an amount, in
cash or other assets, equal to the aggregate of all liabilities
of State Auto Mutual assumed by State Auto P&C under paragraph
4(a) hereof, less a ceding commission equal to the sum of the
acquisition expenses associated with the unearned premium
reserves which are transferred as provided herein. There shall be
included among the assets assigned and transferred to State Auto
P&C by State Auto Mutual all of the right, title and interest of
State Auto Mutual in and to all assets relative to the
underwriting operations of State Auto Mutual, due or that may
become due, as evidenced by its books and records at the close of
business on June 30, 1996, not including investments, accrued
investment income, intercompany balances and bank deposits.
(b) MILBANK: In consideration of the agreements herein contained,
State Auto Mutual hereby agrees that there has been or will be
assigned and transferred to Milbank an amount, in cash or other
assets, equal to the aggregate of all liabilities of State Auto
Mutual assumed by Milbank under paragraph 4(b) hereof, less a
ceding commission equal to the sum of the acquisition expenses
associated with the unearned premium reserves which are
transferred as provided herein. There shall be included among the
assets assigned and transferred to Milbank by State Auto Mutual
all of the right, title and interest of State Auto Mutual in and
to all assets
<PAGE> 6
Page 5
relative to the underwriting operations of State Auto Mutual, due
or that may become due, as evidenced by its books and records at
the close of business on June 30, 1996, not including
investments, accrued investment income, intercompany balances and
bank deposits.
6. PREMIUM COLLECTION AND PAYMENT OF LOSSES:
As of the effective date of this Agreement and pursuant to the
terms of the Amended and Restated Management Agreement dated April 1,
1994, as amended from time to time, which includes as parties, inter
alia Milbank, State Auto Mutual and State Auto P&C, State Auto P&C and
Milbank hereby authorize and empower State Auto Mutual to collect and
receive all premiums and to take charge of, adjust and administer the
payment of all losses with respect to any and all contracts and
policies of insurance previously or thereafter issued by State Auto P&C
and Milbank and to reinsure or terminate all such contracts and
policies, and in all respects to act as though said contracts and
policies were issued by State Auto Mutual. State Auto Mutual agrees to
administer the payment of all losses and loss adjustment expenses in
connection with such contracts and policies. None of the foregoing is
intended to affect or impair the direct obligation of State Auto P&C
and Milbank to their insureds under policies issued by State Auto P&C
and Milbank, respectively.
7. PREMIUM PAYABLE BY STATE AUTO MUTUAL:
(a) STATE AUTO P&C: Commencing with the effective date of this
Agreement, State Auto Mutual hereby agrees to pay to State Auto
P&C its Respective Percentage of the Net Premiums written by the
parties hereto. Similarly, commencing with the effective date of
this Agreement, all losses, loss expenses, underwriting expenses,
and administrative expenses chargeable to underwriting of the
parties hereto, including the policyholder dividends, less all
losses and expenses recovered and recoverable under reinsurance
ceded to reinsurers other than the parties hereto, (except for
catastrophe reinsurance ceded by State Auto Mutual and Milbank to
State Auto P&C pursuant to a Property Catastrophe Overlying
Excess of Loss Reinsurance Contract dated as of July 1, 1996 in
which State Auto P&C provides catastrophe coverage for State Auto
Mutual and Milbank for $100,000,000 of catastrophe losses and
loss expenses in excess of $120,000,000 of such losses and loss
expenses incurred by the Group) (the "State Auto P&C Catastrophe
Assumption Agreement") shall be prorated between the parties on
the basis of the Respective Percentage of each. Accounts shall be
rendered at quarterly intervals and shall be settled within 60
days thereafter.
(b) MILBANK: Commencing with the effective date of this
Agreement, State Auto hereby agrees to pay Milbank its Respective
Percentage of the Net Premiums written by the parties hereto.
Similarly, commencing with the effective date of this Agreement,
all losses, loss expenses, underwriting expenses, and
administrative
<PAGE> 7
Page 6
expenses chargeable to underwriting of the parties hereto,
including policyholder dividends, less all losses and expenses
recovered and recoverable under reinsurance ceded to reinsurers
other than the parties hereto, (except for the State Auto P&C
Catastrophe Assumption Agreement) shall be prorated between the
parties on the basis of the Respective Percentage of each.
Accounts shall be rendered at quarterly intervals and shall be
settled within sixty (60) days thereafter.
8. OFFSET: It is understood and agreed that, insofar as is
practicable and consistent with the purposes and intentions of this
Agreement, the obligations of each company under this Agreement to
transfer assets to the other company may, in whole or in part, be
offset against the reciprocal reinsurance obligations of each company
to the other company so that each company shall deliver hereunder only
a net amount of assets required under such offset.
9. GENERAL STATEMENT OF INTENT: It is the purpose and intent of
this Agreement that:
(a) State Auto Mutual shall be liable as a reinsurer to State
Auto P&C and Milbank on the policies and contracts of insurance
of State Auto P&C and Milbank respectively, issued and in force
at 12:01 a.m., EDST, July 1, 1996, or on which there were, at
that time, unsettled claims or losses, and on policies and
contracts thereafter issued by State Auto P&C and Milbank, to the
extent of State Auto Mutual's Respective Percentage.
(b) State Auto P&C shall be liable as a reinsurer to State Auto
Mutual and Milbank on the policies and contracts of insurance of
State Auto Mutual and Milbank respectively, issued and in force
at 12:01 a.m., EDST, July 1, 1996, or on which there were, at
that time, unsettled claims or losses, and on policies and
contracts thereafter issued by State Auto Mutual and Milbank to
the extent of State Auto P&C's Respective Percentage.
(c) Milbank shall be liable as a reinsurer to State Auto Mutual
and State Auto P&C on the policies and contracts of State Auto
Mutual and State Auto P&C respectively, issued and in force at
12:01 a.m., EDST, on July 1, 1996, or on which there were, at
that time, unsettled claims or losses and on policies thereafter
issued by State Auto Mutual or State Auto P&C to the extent of
Milbank's Respective Percentage.
(d) The parties hereto shall, on and after 12:01 a.m., EDST, July
1, 1996, participate on the basis of 55% for State Auto, 35% for
State Auto P&C and 10% for Milbank in all of the underwriting
operations of each of the three parties hereto.
<PAGE> 8
Page 7
10. LOSSES EXCLUDED: Notwithstanding any of the foregoing, the
parties hereto understand and agree that this Amended and Restated
Reinsurance Pooling Agreement shall not apply to catastrophe losses and
loss expenses for residential and commercial property to the extent
such losses and loss expenses are covered by the State Auto P&C
Catastrophe Assumption Agreement. Once the aforesaid $100,000,000 of
coverage is exhausted by loss expenses and loss payments on behalf of
any party hereto, under either the State Auto P&C Catastrophe
Assumption Agreement or directly, all parties understand and agree that
catastrophe losses and loss expenses in excess of $220,000,000 shall
once again be ceded and assumed under the terms of this Amended and
Restated Reinsurance Agreement. All premiums attributable to the State
Auto P&C Catastrophe Assumption Agreement are to be paid to State Auto
P&C outside of the Amended and Restated Reinsurance Pooling Agreement.
11. LIABILITIES EXCLUDED: In addition to the liabilities set forth
in paragraphs 2(a), 2(b) and 10 above, this Agreement shall not apply
to the investment operation or liabilities for federal income tax or
other liabilities excluded by this Agreement.
12. "FOLLOW THE FORTUNES": The reinsurance provided by the terms of
this Agreement shall be subject to the same terms and conditions under
which the original insurance was concluded, or which may be or may have
been agreed to during the term of the original insurance contract.
13. METHODS AND PROCEDURES: The president of State Auto Mutual, State
Auto P&C and Milbank, or any officer of any of these companies
designated by said president, shall determine the methods and
procedures, including accounting transactions, by which the terms of
this Agreement shall be performed by and on behalf of the parties
hereto.
14. AMENDMENTS: This Agreement may be modified from time to time, so
as to adapt its provisions to the varying conditions of the business of
the Group, by a mutual agreement in writing of the parties hereto,
subject to ratification by the Board of Directors of each party and
with the approval of the insurance officials from the State of Ohio,
the State of South Carolina, and the State of South Dakota as required
by law.
15. TERM: This Agreement shall remain in full force and
effect until canceled by agreement of the parties or by the giving of
ninety (90) days notice by one of the parties to the other parties and
to the respective domiciliary insurance department of each of the
parties.
16. INTERPRETATION: Wherever required to give the correct meaning
throughout this Agreement, the singular shall be interpreted in the
plural. Clerical errors or errors of involuntary or inadvertent
omission or commission shall not be interpreted as a discharge of
liability on behalf of any of the parties to this contract. Such errors
shall be rectified at the time of discovery or as soon as practicable
thereafter. Caption headings are for convenience only and are not
intended to affect the construction of the terms hereof.
<PAGE> 9
Page 8
17. INSOLVENCY: The reinsurance made under this Agreement shall be
payable by the assuming reinsurer on the basis of the liability of the
ceding insurer under the contract or contracts reinsured without
diminution because of the insolvency of the ceding insurer. In the
event of insolvency of the ceding insurer, the liquidator or receiver
or statutory successor of such insurer shall give written notice to the
assuming reinsurer of the pendency of a claim against the insolvent
ceding insurer on the policy or bond reinsured within a reasonable time
after such claim is filed in the insolvency proceeding; that during the
pendency of such claim the assuming reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding where such
claim is to be adjudicated any defense or defenses which it may deem
available to the ceding insurer or its liquidator or receiver or
statutory successors; that the expense thus incurred by the assuming
reinsurer shall be chargeable, subject to court approval, against the
insolvent ceding insurer as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the
ceding insurer solely as a result of the defense undertaken by the
assuming reinsurer. The reinsurance made effective under this Agreement
shall be payable by the assuming reinsurer to the ceding insurer or to
the liquidator, receiver or statutory successor of the ceding insurer.
18. ARBITRATION: In the event of any dispute hereafter arising with
respect to this Agreement, State Auto Mutual, State Auto P&C, and
Milbank hereby agree that such dispute shall, upon the request of the
one of the parties, be submitted to arbitration. One arbitrator shall
be chosen by each party and those arbitrators shall then select an
umpire who shall hear and decide the issues to be arbitrated. If one
party fails to name an arbitrator within thirty (30) days after receipt
of a written request to do so, the party initiating the arbitration may
choose the arbitrators. The decision of the umpire shall be final and
binding on the parties. Each party shall bear the expense of its
arbitrator and the cost of the umpire shall be shared equally. The
arbitration shall take place at Columbus, Ohio or such other location
upon which the parties may mutually agree.
<PAGE> 10
Page 9
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date and the year first above written.
Attest: STATE AUTOMOBILE MUTUAL
INSURANCE COMPANY
/s/ John R. Lowther By /s/ Robert H. Moone
- ----------------------------- ----------------------------------
Secretary President
STATE AUTO PROPERTY AND CASUALTY
INSURANCE COMPANY
/s/ John R. Lowther By /s/ Robert H. Moone
- ----------------------------- ----------------------------------
Secretary President
MILBANK INSURANCE COMPANY
/s/ John R. Lowther By /s/ Robert H. Moone
- ----------------------------- ---------------------------------
Secretary President
<PAGE> 1
10(Z)
PROPERTY CATASTROPHE OVERLYING EXCESS OF LOSS
REINSURANCE CONTRACT BETWEEN
STATE AUTOMOBILE MUTUAL INSURANCE COMPANY,
MILBANK INSURANCE COMPANY,
STATE AUTO NATIONAL INSURANCE COMPANY
AND STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY
DATED JULY 1, 1996
<PAGE> 2
STATE AUTO MUTUAL INSURANCE COMPANY
MILBANK INSURANCE COMPANY
STATE AUTO NATIONAL INSURANCE COMPANY
PROPERTY CATASTROPHE OVERLYING EXCESS OF LOSS
REINSURANCE CONTRACT
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
ARTICLE NO. TITLE PAGE
- ----------- ----- ----
<S> <C> <C>
ARTICLE I BUSINESS COVERED 1
ARTICLE II EXCLUSIONS 1 - 2
ARTICLE III TERM 3
ARTICLE IV TERRITORY 3
ARTICLE V AMOUNT OF LIMIT AND RETENTION 3
ARTICLE VI ULTIMATE NET LOSS 3 - 4
ARTICLE VII NET RETAINED LINES 4
ARTICLE VIII UNDERLYING EXCESS 4
ARTICLE IX DEFINITION OF LOSS OCCURRENCE 4 - 6
ARTICLE X NOTICE OF LOSS AND LOSS SETTLEMENT 6
ARTICLE XI PREMIUM 6
ARTICLE XII CURRENCY 6
ARTICLE XIII OFFSET 7
ARTICLE XIV ACCESS TO RECORDS 7
ARTICLE XV ERRORS AND OMISSIONS 7
ARTICLE XVI TAXES 7
ARTICLE XVII INSOLVENCY 8
ARTICLE XVIII ARBITRATION 8 - 9
</TABLE>
<PAGE> 3
PROPERTY CATASTROPHE OVERLYING EXCESS OF LOSS
REINSURANCE CONTRACT
BETWEEN
STATE AUTO MUTUAL INSURANCE COMPANY
MILBANK INSURANCE COMPANY
STATE AUTO NATIONAL INSURANCE COMPANY
(HEREINAFTER COLLECTIVELY REFERRED TO AS THE "COMPANY")
AND
STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY
(HEREINAFTER REFERRED TO AS THE SUBSCRIBING "REINSURER")
ARTICLE I
BUSINESS COVERED:
The Reinsurer shall indemnify the Company for the net excess
liability as hereinafter provided and specified, which may accrue
to the Company as a result of any loss or losses which may occur
during the currency of the Contract under any and all policies,
contracts, binders and other evidence of insurance and
reinsurance, oral or written (hereinafter referred to as
"Policies") heretofore or hereafter issued or entered into by or
on behalf of the Company and classified by the Company as Fire,
Allied Lines, Homeowners (property coverages), Farmowners
(property coverages), Commercial Multiple Peril policies
(property coverages), Ocean Marine, Inland Marine and Automobile
Physical Damage.
ARTICLE II
EXCLUSIONS:
The following shall be excluded from the scope of this Contract:
1. Business written and classified by the Company as:
a) Aviation Insurance;
b) Casualty Insurance (i.e. Accident, Health, Third Party
Liability, Workers Compensation and Employers
Liability, Fidelity, Plate Glass and Burglary and Theft
when written as such);
c) Credit Insurance;
d) Financial Guarantee Insurance;
e) Insolvency Insurance;
f) Life Insurance;
PAGE 1 OF 9
<PAGE> 4
g) Mortgage Impairment Insurance;
h) Title Insurance;
i) Surety;
j) Flood Insurance when written as such;
k) Earthquake Insurance when written as such;
l) Difference in Conditions Insurance;
m) Ocean Marine Insurance, except yachts;
n) Boiler and Machinery;
o) Multiple Peril policies other than the Property
coverages as included in the Business Covered Section,
hereof;
p) Reinsurance, but not to exclude so-called agency
reinsurance, reinsurance of an individual risk or
policy, or any intercompany pooling arrangements.
2. Wind and Hail on growing and standing crops.
3. Manufacture, processing, storage, filling or breaking down
of explosives.
4. Oil and petrochemical refineries and pipelines and oil or
gas drilling rigs.
5. Excess of Loss insurance or reinsurance where the deductible
exceeds $99,999.
6. Bridges and Tunnels where the Total Insured Value over all
interests exceeds $250,000,000.
7. Extra Contractual Obligations and Losses in Excess of Policy
Limits as per attached Exclusion Clause.
8. Loss/or Damage/or Costs/or Expenses arising from seepage
and/or Pollution and/or Contamination, other than
Contamination from Smoke Damage. Nevertheless, this
exclusion does not preclude payment of the cost of removal
of debris of property damaged by a loss otherwise covered
hereunder, but subject always to a limit of 25% of the
Company's property loss under the original policy.
9. Loss in respect of overhead transmission and distribution
lines and their supporting structure other than those on or
within 150 meters (or 500 feet) of the insured premises. It
is understood and agreed that public utilities extension
and/or suppliers extension and/or contingent business
interruption coverages are not subject to this exclusion,
provided that these are not part of a transmitters' or
distributors' policy.
10. Insolvency Fund Exclusion Clause.
11. War Risk Exclusion Clause.
12. Pools and Associations Exclusion Clause.
13. Nuclear Incident Exclusion Clauses - Physical Damage -
Reinsurance - U.S.A. and Canada.
PAGE 2 OF 9
<PAGE> 5
ARTICLE III
TERM:
The term of this Contract shall be from 12:01 A.M. Standard Time,
July 1, 1996 to 12:01 A.M. Standard Time, July 1, 1997.
If the liability of the Reinsurer under this Contract terminates
while a loss occurrence giving rise to a claim hereunder is in
progress, then the Reinsurer shall be liable as if the whole loss
occurrence had occurred during the term of this Contract,
provided that no part of that loss occurrence is claimed against
any renewal or replacement of this Contract.
ARTICLE IV
TERRITORY:
This Contract shall cover wherever the Company's Policies cover.
ARTICLE V
AMOUNT OF LIMIT AND RETENTION:
No claim shall be made hereunder unless and until the Company and
other members of the State Auto Insurance Companies Group, being
State Automobile Mutual Insurance Company, State Auto Property
and Casualty Insurance Company, Milbank Insurance Company, and
State Auto National Insurance Company, hereinafter referred to as
the "Group", on a pooled basis where applicable, shall first have
sustained an Ultimate Net Loss in excess of $120,000,000,
regardless of the number of Policies under which such loss is
payable or the number of interests insured. The Reinsurer shall
then be liable for the amount of Ultimate Net Loss for the
Company in excess of $120,000,000 Ultimate Net Loss each
occurrence, but the sum recoverable from the Reinsurer in respect
of each loss occurrence shall not exceed $100,000,000, nor more
than $100,000,000 in respect of all loss occurrences during the
term of this contract.
The amount of coverage is subject to at least two risks being
involved in the same loss occurrence.
ARTICLE VI
ULTIMATE NET LOSS:
The term "ultimate net loss" shall mean the amount that the
Company pays, such loss to include all expenses incurred by the
Company in connection with the settlement of losses or resistance
to or negotiations concerning a loss, including salaries and
expenses of employees of the Company while diverted from their
normal duties to the service of field adjustment
PAGE 3 OF 9
<PAGE> 6
but shall not include any office expenses of the Company.
However, nothing in this Article shall be construed to prevent
the Company from including all such amounts defined as ultimate
net loss attributable to the Group on a pooled basis for the
first $120,000,000 of ultimate net loss.
All salvages and recoveries and payments (net of the cost of
obtaining any salvage, recovery or payment), whether recovered or
received prior or subsequent to loss settlement under this
Contract, including amounts recoverable under all Reinsurances
whether collected or not, shall be applied as if recovered or
received prior to the aforesaid settlement and shall be deducted
from the actual loss incurred to arrive at the amount of ultimate
net loss. Nothing in this Article shall be construed to mean
losses are not recoverable until the ultimate net loss to the
Company has been ascertained.
ARTICLE VII
NET RETAINED LINES:
This Contract applies to only that portion of any policy which
the Company and the other member of the Group, on a pooled basis
where applicable, retains net for its own account.
The amount of the Reinsurer's liability hereunder in respect of
any loss shall not be increased by reason of the inability of the
Company to collect from any other Reinsurer, whether specific or
general, any amounts which may have become due whether such
inability arises from the insolvency of such other Reinsurer or
otherwise.
ARTICLE VIII
UNDERLYING EXCESS:
The Company has in force underlying catastrophe excess of loss
reinsurance and recoveries thereunder shall be disregarded for
all purposes of this Contract and shall inure to the sole benefit
of the Company.
ARTICLE IX
DEFINITION OF LOSS OCCURRENCE:
The term "loss occurrence" shall mean the sum of all individual
losses directly occasioned by any one disaster, accident or loss
or series of disasters, accidents or losses arising out of one
event which occurs within the area of one state of the United
States or province of Canada and states or provinces contiguous
thereto and to one another. However, the duration and extent of
any one "loss occurrence" shall be limited to all individual
losses sustained by the Company occurring during any period of
one hundred sixty-eight (168) consecutive hours arising out of
and directly occasioned by the same event except that the term
"loss occurrence" shall be further defined as follows:
PAGE 4 OF 9
<PAGE> 7
A. As regards windstorm, hail, tornado, hurricane,
cyclone, including ensuing collapse and water damage,
all individual losses sustained by the Company
occurring during any period of seventy-two (72)
consecutive hours arising out of and directly
occasioned by the same event. However, the event need
not be limited to one state or province or states or
provinces contiguous thereto.
B. As regards riot, riot attending a strike, civil
commotion, vandalism and malicious mischief, all
individual losses sustained by the Company occurring
during any period of seventy-two (72) consecutive hours
within the area of one municipality or county and the
municipalities or counties contiguous thereto arising
out of and directly occasioned by the same event. The
maximum duration of seventy-two (72) consecutive hours
may be extended in respect of individual losses which
occur beyond such seventy-two (72) consecutive hours
during the continued occupation of an insured's
premises by strikers, provided such occupation
commenced during the aforesaid period.
C. As regards earthquake (the epicentre of which need not
necessarily be within the territorial confines referred
to in the opening paragraph of this Article) and fire
following directly occasioned by the earthquake, only
those individual fire losses which commence during the
period of one hundred and sixty-eight (168) consecutive
hours may be included in the Company's "loss
occurrence".
D. As regards "freeze", only individual losses directly
occasioned by collapse, breakage of glass and water
damage (caused by bursting of frozen pipes and tanks)
may be included in the Company's "loss occurrence".
For all "loss occurrences" except as referred to under
sub-paragraph B, the Company may choose the date and time when
any such period of consecutive hours commences, provided that it
is not earlier than the date and time of the occurrence of the
first recorded individual loss sustained by the Company arising
out of that disaster, accident, or loss and provided that only
one such period of one hundred and sixty-eight (168) consecutive
hours shall apply with respect to one event, except for those
"loss occurrences" referred to in sub-paragraph A above, where
only one such period of seventy-two (72) consecutive hours shall
apply with respect to one event, regardless of the duration of
the event.
As respect those "loss occurrences" referred to in sub-paragraph
B above, if the disaster, accident or loss occasioned by the
event is of greater duration than seventy-two (72) consecutive
hours, then the Company may divide that disaster, accident or
loss into two or more "loss occurrences" provided no two periods
overlap and no individual loss is included in more than one such
period and provided that no period commences earlier than the
date and time of the occurrence of the first recorded individual
loss sustained by the Company arising out of that disaster,
accident or loss.
PAGE 5 OF 9
<PAGE> 8
No individual losses occasioned by an event that would be covered
by seventy-two (72) hours clauses may be included in any "loss
occurrence" claimed under the one hundred and sixty-eight (168)
hours provision.
ARTICLE X
NOTICE OF LOSS AND LOSS SETTLEMENT:
The Company shall adjust, settle, or compromise all claims and
losses hereunder.
All loss settlements by the Company which comply with the terms
hereof shall be unconditionally binding upon the Reinsurer.
The Company shall advise the Reinsurer promptly of all claims and
any subsequent developments pertaining thereto, which may, in the
Company's opinion, develop into losses involving Reinsurance
hereunder. Inadvertent omission or oversight in dispatching such
advices shall in no way affect the liability of the Reinsurer
under this Contract provided the Company informs the Reinsurer of
such omission or oversight promptly upon its discovery.
The Reinsurer shall tender all loss payments as soon as
practicable after receipt of any proof of loss.
ARTICLE XI
PREMIUM:
The premium to be paid to the Reinsurer shall be $3,000,000,
payable in four equal quarterly installments.
ARTICLE XII
CURRENCY:
All retentions, limits and premiums referenced in this Contract
are expressed in United States Dollars and all payments made by
either party shall be made in United States Dollars.
Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered on the books of
the Company.
PAGE 6 OF 9
<PAGE> 9
ARTICLE XIII
OFFSET:
The Company and the Reinsurer, each at its option, may offset any
balance or balances, whether on account of premiums, claims and
losses, loss expenses or salvages due from one party to the other
under this Contract; provided, however, that in the event of the
insolvency of a party hereto, offsets shall only be allowed in
accordance with applicable statutes and regulations.
ARTICLE XIV
ACCESS TO RECORDS:
The Company shall place at the disposal of the Reinsurer at all
reasonable times, and the Reinsurer shall have the right to
inspect through its designated representatives, during the term
of this Contract and thereafter, all books, records and papers of
the Company in connection with any reinsurance hereunder, or the
subject matter hereof.
ARTICLE XV
ERRORS AND OMISSIONS:
Any inadvertent delay, omission or error shall not be held to
relieve either party hereto from any liability which would attach
to either party if such delay, omission or error had not been
made, provided such delay, omission or error is rectified as soon
as practicable after discovery.
ARTICLE XVI
TAXES:
In consideration of the terms under which this Contract is
issued, the Company undertakes not to claim any deduction of the
premium hereon when making Canadian tax returns, or when making
tax returns, other than income or profits tax returns, to any
state or territory of the United States of America or to the
District of Columbia.
ARTICLE XVII
INSOLVENCY:
The reinsurance under this Contract shall be payable by the
Reinsurer on the basis of the liability of one or more of the
Companies under the Policy or Policies reinsured without
diminution because of the insolvency of one or more of the
Companies reinsured or because
PAGE 7 OF 9
<PAGE> 10
the liquidator, receiver, conservator or statutory successor of
the Company(ies) has failed to pay all or a portion of any claim.
In the event of the insolvency of one or more of the Companies
reinsured, the liquidator, receiver, conservator or statutory
successor of the Company(ies) shall give written notice to the
Reinsurer of the pendency of a claim against the insolvent
Company(ies) on the Policy or Policies reinsured within a
reasonable time after such claim is filed in the insolvency
proceeding and during the pendency of such claim the Reinsurer
may investigate such claim and interpose, at its own expense, in
the proceeding where such claim is to be adjudicated any defense
or defenses which it may deem available to the Company(ies) or
its liquidator, receiver, conservator or statutory successor. The
expense thus incurred by the Reinsurer shall be chargeable
subject to court approval against the insolvent Company(ies) as
part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the
Company(ies) solely as a result of the defense undertaken by the
Reinsurer.
Where two or more Reinsurers are involved in the same claim and a
majority in interest elect to interpose defense to such claim,
the expense shall be apportioned in accordance with the terms of
this Contract as though such expense had been incurred by the
Company(ies).
In the event of the insolvency of one or more of the Companies
reinsured, the reinsurance under this Contract shall be payable
by the Reinsurer directly to the Company(ies) or to the
liquidator, receiver, conservator or statutory successor, except
as provided by subsection (A) of section 4118 of the Insurance
Law of New York or except where (I) the Contract specifies
another payee of such Reinsurance in the event of the insolvency
of the Company(ies) and (II) the Reinsurer with the consent of
the direct insureds and, with the prior approval of the
Superintendent of Insurance of New York to the certificate of
assumption issued to New York direct insureds, has assumed such
policy obligations of the Company(ies) as its direct obligations
to the payees under such policies, in substitution for the
obligations of the Company(ies) to such payees.
ARTICLE XVIII
ARBITRATION:
If any dispute shall arise between the parties to this Contract,
either before or after its termination, with reference to the
interpretation of this Contract or the rights of either party
with respect to any transactions under this Contract, including
the formation or validity thereof, the dispute shall be referred
to three (3) arbitrators as a condition precedent to any right of
action arising under this Contract. The arbitrators shall be
active or retired disinterested officers of insurance or
reinsurance companies or Lloyd's Underwriters other than the
parties or their affiliates. One arbitrator shall be chosen by
each party and the third by the two so chosen. If either party
refuses or neglects to appoint an arbitrator within thirty (30)
days after the receipt of written notice from the other party
requesting it to do so, the requesting party may nominate two (2)
arbitrators who shall choose the third.
In the event the arbitrators do not agree on the selection of the
third arbitrator within thirty (30) days after both arbitrators
have been named, the Company shall petition the American
Arbitration Association to appoint the third arbitrator. If the
American Arbitration
PAGE 8 OF 9
<PAGE> 11
Association fails to appoint the third arbitrator within thirty
(30) days after it has been requested to do so, either party may
request a justice of a court of general jurisdiction of the state
in which the arbitration is to be held, to appoint an officer or
retired officer of an insurance or reinsurance company or Lloyd's
Underwriter as the third arbitrator. In the event both parties
request the appointment of the third arbitrator, the third
arbitrator shall be the soonest named in writing by the justice
of the court.
Each party shall submit its case to the arbitrators within thirty
(30) days of the appointment of the arbitrators. The arbitrators
shall consider this Contract an honorable engagement rather than
merely a legal obligation; they are relieved of all judicial
formalities and may abstain from following the strict rules of
law. The decision of a majority of the arbitrators shall be final
and binding on both the Company and the Reinsurer. Judgment may
be entered upon the award of the arbitrators in any court having
jurisdiction.
Each party shall bear the fee and expenses of its own arbitrator,
one half of the fee and the expenses of the third arbitrator and
one half of the other expenses of the arbitration. In the event
both arbitrators are chosen by one party, the fees of the
arbitrators shall be equally divided between the parties.
Any such arbitration shall take place in Columbus, Ohio unless
some other location is mutually agreed upon by the parties.
PAGE 9 0F 9
<PAGE> 12
INSOLVENCY FUNDS EXCLUSIONS CLAUSE
This Agreement excludes: All liability of the Company arising, by contract,
operation of law, or otherwise, from its participation or membership, whether
voluntary or involuntary, in any insolvency fund. "Insolvency Fund" includes any
guaranty fund, insolvency fund, plan, pool, association, fund or other
arrangement, howsoever denominated, established or governed, which provides for
any assessment of or payment or assumption by the Company of part or all of any
claim, debt, charge, fee or other obligation of an insurer, or its successors or
assigns, which has been declared by any competent authority to be insolvent, or
which is otherwise deemed unable to meet any claim, debt, charge, fee, or other
obligation in whole or in part.
<PAGE> 13
EXTRA CONTRACTUAL OBLIGATIONS AND
LOSSES IN EXCESS OF POLICY LIMITS EXCLUSION CLAUSE
Notwithstanding any other provision of this Contract, the Reinsurer shall not be
liable to the Reassured for any Extra Contractual Obligations or Losses in
Excess of Policy Limits.
"Extra Contractual Obligations" means those liabilities of the Reassured,
together with any legal costs and expenses incurred in connection therewith,
paid or payable by the Reassured as a result of an action against it, by any
assured, the assignee of any assured, or a third party claimant, which arise
from the handling of any claim on any insurance policy, such liabilities arising
because of, but not limited to, the following; failure by the Reassured to
settle within the policy limit, or by reason of alleged or actual negligence,
fraud, or bad faith in rejecting an offer of settlement or in the preparation of
the defense or in the trial of any action against its assured or in the
preparation or prosecution of an appeal consequent upon such action.
"Losses in Excess of Policy Limits" means those losses of the Reassured in
excess of the limit of any policy of insurance reinsured hereunder, such loss in
excess of the limit having been incurred because of failure by the Reassured to
settle within the policy limit or by reason of alleged or actual negligence,
fraud, or bad faith in rejecting an offer or settlement or in the preparation of
the defense or in the trial of any action against its assured or in the
preparation or prosecution of an appeal consequent upon such action.
No inference shall be drawn from the foregoing exclusion of liabilities that
this Contract or any portion of this Contract otherwise covers such liabilities
in the absence of said exclusion.
<PAGE> 14
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE -
REINSURANCE - CANADA
APPLICABLE TO POLICIES BECOMING EFFECTIVE ON AND AFTER
JANUARY 1, 1985
(SEE NOTE)
1. This Agreement does not cover any loss or liability accruing to the
Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, from any
Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph 1 of this Clause,
this Agreement does not cover any loss or liability accruing to the Reinsured,
directly or indirectly, and whether as Insurer or Reinsurer, from any insurance
against Physical Damage (including business interruption or consequential loss
arising out of such Physical Damage) to:
(A) Nuclear reactor power plants including all auxiliary property on
the site, or
(B) Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and critical facilities as such, or
(C) Installations for fabricating complete fuel elements or for
processing substantial quantities of prescribed substances, and
for reprocessing, salvaging, chemically separating, storing or
disposing of spent nuclear fuel or waste materials, or
(D) Installations other than those listed in (C) above using
substantial quantities of radioactive isotopes or other products
of nuclear fission.
3. Without in any way restricting the operations of paragraphs 1 and 2 of this
Clause, this Agreement does not cover any loss or liability by radioactive
contamination accruing to the Reinsured, directly or indirectly, and whether as
Insurer or Reinsurer from any insurance on property which is on the same site as
a nuclear reactor power plant or other nuclear installations and which normally
would be insured therewith, except that this paragraph 3 shall not operate
(A) Where the Reinsured does not have knowledge of such nuclear
reactor power plant or nuclear installation, or
(B) Where the said insurance contains a provision excluding coverage
for damage to property caused by or resulting from radioactive
contamination, however caused.
<PAGE> 15
4. Without in any way restricting the operation of paragraphs 1, 2, and 3 of
this Clause, this Agreement does not cover any loss or liability by radioactive
contamination accruing to the Reinsured, directly or indirectly, and whether as
Insurer or Reinsurer, when such radioactive contamination is a named hazard
specifically insured against.
5. This Clause shall not extend to risks using radioactive isotopes in any
form where the nuclear exposure is not considered by the Reinsured to be the
primary hazard.
6. The term "prescribed substances" shall have the meaning given it by the
Atomic Energy Control Act R.S.C. 1974, or by any law amendatory thereof.
7. The Reinsured to be sole judge of what constitutes:
(A) substantial quantities, and
(B) the extent of installation, plant or site.
8. Without in any way restricting the operation of paragraphs 1, 2, 3 and 4 of
this Clause, this Agreement does not cover any loss or liability accruing to the
Reinsured, directly or indirectly, and whether as Insurer or Reinsurer caused by
any nuclear incident as defined in the Nuclear Liability Act, nuclear explosion
or contamination by radioactive material.
NOTE: In addition, this Clause is applicable to all original contracts of
the Reinsured in effect prior to January 1, 1985 whether new,
renewal or replacement which incorporate a Nuclear
Incident/Radioactive Contamination Exclusion as contained in form
IBC 1105 1-82.
<PAGE> 16
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE -
REINSURANCE - U.S.A.
1. This Reinsurance does not cover any loss or liability accruing to
the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from
any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph (1) of
this Clause, this Reinsurance does not cover any loss or liability accruing to
the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from
any insurance against Physical Damage (including business interruption or
consequential loss arising out of such Physical Damage) to:
I. Nuclear reactor power plants including all auxiliary property
on the site, or
II. Any other nuclear reactor installation including laboratories
handling radioactive materials in connection with reactor
installations, and "critical facilities" as such, or
III. Installations for fabricating complete fuel elements or for
processing substantial quantities of "special nuclear
material," and for reprocessing, salvaging, chemically
separating, storing or disposing of "spent" nuclear fuel or
waste materials, or
IV. Installations other than those listed in paragraph (2) III
above using substantial quantities of radioactive isotopes or
other products of nuclear fission.
3. Without in any way restricting the operations of paragraphs (1) and
(2) hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph (3) shall not
operate:
(A) Where the Reassured does not have knowledge of such nuclear
reactor power plant or nuclear installation, or
(B) Where said insurance contains a provision excluding coverage
for damage to property caused by or resulting from radioactive
contamination, however caused. However on and after 1st
January 1960 this sub-paragraph (B) shall only apply provided
the said radioactive contamination exclusion provision has
been approved by the Governmental Authority having
jurisdiction thereof.
4. Without in any way restricting the operations of paragraphs (1), (2)
and (3) hereof, this Reinsurance does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or indirectly, and
whether as Insurer or Reinsurer, when such radioactive contamination is a named
hazard specifically insured against.
<PAGE> 17
5. It is understood and agreed that this Clause shall not extend to
risks using radioactive isotopes in any form where the nuclear exposure is not
considered by the Reassured to be the primary hazard.
6. The term "special nuclear material" shall have the meaning given it
in the Atomic Energy Act of 1954, or by any law amendatory thereof.
7. The Reassured to be sole judge of what constitutes:
(A) substantial quantities, and
(B) the extent of installation, plant or site.
NOTE: Without in any way restricting the operation of paragraph (1) hereof,
it is understood and agreed that:
(A) all policies issued by the Reassured on or before 31st
December 1957 shall be free from the application of the other
provision of this Clause until expiry date or 31st December
1960, whichever first occurs whereupon all the provisions of
this Clause shall apply,
(B) with respect to any risk located in Canada policies issued by
the Reassured on or before 31st December 1958 shall be free
from the application of the other provisions of this Clause
until expiry date or 31st December 1960, whichever first
occurs whereupon all the provisions of this Clause shall
apply.
<PAGE> 18
POOLS, ASSOCIATIONS & SYNDICATES EXCLUSION CLAUSE
SECTION A:
EXCLUDING:
(1) All Business derived directly or indirectly from any Pool,
Association or Syndicate which maintains its own reinsurance
facilities.
(2) Any Pool or Scheme (whether voluntary or mandatory) formed
after March 1, l968 for the purpose of insuring Property
whether on a country-wide basis or in respect of designated
areas. This exclusion shall not apply to so-called Automobile
Insurance Plans or other Pools formed to provide coverage for
Automobile Physical Damage.
SECTION B:
It is agreed that business written by the Company for the same perils, which is
known at the time to be insured by, or in excess of underlying amounts placed in
the following Pools, Associations, or Syndicates, whether by way of insurance or
reinsurance, is excluded hereunder:
Industrial Risk Insurers; Associated Factory Mutuals; Improved Risk
Mutuals.
Any Pool, Association or Syndicate formed for the purpose of writing
Oil, Gas or Petro-Chemical Plants and/or Oil or Gas Drilling Rigs.
United States Aircraft Insurance Group, Canadian Aircraft Insurance
Group, Associated Aviation Underwriters, American Aviation
Underwriters.
SECTION B does not apply:
(1) Where the Total Insured Value over all interests of the risk
in question is less than $250,000,000.
(2) To interests traditionally underwritten as Inland Marine or
Stock and/or Contents written on a Blanket basis.
(3) To Contingent Business Interruption, except when the Company
is aware that the key location is known at the time to be
insured in any Pool, Association or Syndicate named above,
other than as provided for under Section B (1).
(4) To risks as follows: Offices, Hotels, Apartments, Hospitals,
Educational Establishments, Public Utilities (other than
Railroad Schedules) and Builder's Risks on the classes of
risks specified in this subsection (4) only.
<PAGE> 19
SECTION C:
Where this Clause attaches to catastrophe excesses, the following Section C is
added:
NEVERTHELESS the Reinsurer specifically agree that liability accruing to the
Company from its participation in:
(l) The following so-called "Coastal Pools":
ALABAMA INSURANCE UNDERWRITING ASSOCIATION
FLORIDA WINDSTORM UNDERWRITING ASSOCIATION
LOUISIANA INSURANCE UNDERWRITING ASSOCIATION
MISSISSIPPI WINDSTORM UNDERWRITING ASSOCIATION
NORTH CAROLINA INSURANCE UNDERWRITING ASSOCIATION
SOUTH CAROLINA WINDSTORM AND HAIL UNDERWRITING
ASSOCIATION
TEXAS CATASTROPHE PROPERTY INSURANCE ASSOCIATION
and
(2) All "FAIR Plan" and "Rural Risk Plan" business, including the
Florida Residential Property and Casualty Joint Underwriting
Association and the Florida Property and Casualty Joint
Underwriting Association ("JUA").
For all perils otherwise protected hereunder shall not be excluded,
except, however, that this reinsurance does not include any increase in such
liability resulting from:
(1) the inability of any other participant in such "Coastal Pool"
and/or "FAIR Plan" and/or "Rural Risk Plan" and/or Residual
Market Mechanisms to meet its liability.
(2) any claim against such "Coastal Pool" and/or "FAIR Plan"
and/or "Rural Risk Plan" and/or Residual Market Mechanisms or
any participant therein, including the Company, whether by way
of subrogation or otherwise, brought by or on behalf of any
Insolvency Fund (as defined in the Insolvency Fund Exclusion
Clause incorporated in this Contract).
<PAGE> 20
SECTION D:
Notwithstanding Section C above, in respect of the FWUA, FPCJUA and RPCJUA,
where an assessment is made against the Company by the FWUA, the FPCJUA, the
RPCJUA, or any combination thereof, the maximum loss that the Company may
include in the Ultimate Net Loss in respect of any loss occurrence hereunder
shall not exceed the lesser of:
(1) The Company's assessment from the relevant entity (FWUA,
FPCJUA and/or RPCJUA) for the accounting year in which the
loss occurrence commenced, or
(2) The product of the following:
a) The Company's percentage participation in the relevant
entity for the accounting year in which the loss
occurrence commenced; and
b) The relevant entity's total losses in such loss
occurrence.
Any assessments for accounting years subsequent to that in which the loss
occurrence commenced may not be included in the Ultimate Net Loss hereunder.
Moreover, notwithstanding Section C above, in respect of the FWUA, the FPCJUA
and/or the RPCJUA, the Ultimate Net Loss hereunder shall not include any monies
expended to purchase or retire bonds as a consequence of being a member of the
FWUA, the FPCJUA and/or the RPCJUA. For the purposes of this Contract, the
Company may not include in the Ultimate Net Loss any assessment or any
percentage assessment levied by the FWUA, the FPCJUA and/or the RPCJUA to meet
the obligations of an insolvent insurer member or other party, or to meet any
obligations arising from the deferment by the FWUA, FPCJUA and/or RPCJUA of the
collection of monies.
<PAGE> 21
NORTH AMERICAN WAR EXCLUSION CLAUSE (REINSURANCE)
Approved by Lloyd's Underwriters' Fire and Non-Marine Association
"As regards interests which at time of loss or damage are on shore, no liability
shall attach hereto in respect of any loss or damage which is occasioned by war,
invasion, hostilities, acts of foreign enemies, civil war, rebellion,
insurrection, military or usurped power, or martial law or confiscation by order
of any government or public authority.
This War Exclusion Clause shall not, however, apply to interests which at time
of loss or damage are within the territorial limits of the United States of
America (comprising the fifty States of the Union and the District of Columbia,
its territories and possessions including Panama Canal Zone and the Commonwealth
of Puerto Rico and including Bridges between the U.S.A. and Mexico provided they
are under United States ownership), Canada, St. Pierre and Miquelon, provided
such interests are insured under policies, endorsements or binders containing a
standard war or hostilities or warlike operations exclusion clause."
Nevertheless, this Clause shall not be construed to apply to riots, strikes,
civil commotion, vandalism, malicious damage including acts committed by the
agent of any government, party or faction engaged in war, hostilities, or other
warlike operation, providing such agent is acting secretly and not in connection
with any operations of military or naval armed forces in the country where the
interest insured is situated.
<PAGE> 1
10(AA)
CREDIT AGREEMENT
BETWEEN
SAF FUNDING CORPORATION
AND
THE CHASE MANHATTAN BANK
DATED AUGUST 16, 1996
<PAGE> 2
[Execution Counterpart]
************************************************************
SAF FUNDING CORPORATION
-----------------------------
CREDIT AGREEMENT
Dated as of August 16, 1996
------------------------------
THE CHASE MANHATTAN BANK,
as Administrative Agent
************************************************************
<PAGE> 3
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which
it is attached but is inserted for convenience of reference only.
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Definitions and Accounting Matters.................................................................. 1
1.01 Certain Defined Terms............................................................................ 1
1.02 Accounting Terms and Determinations.............................................................. 8
1.03 Types of Loans................................................................................... 9
1.04 Subsidiaries..................................................................................... 9
Section 2. Commitments, Loans, Notes and Prepayments........................................................... 9
2.01 Loans............................................................................................ 9
2.02 Borrowings....................................................................................... 9
2.03 Changes of Commitments........................................................................... 9
2.04 Commitment Fee................................................................................... 9
2.05 Lending Offices.................................................................................. 10
2.06 Several Obligations; Remedies Independent........................................................ 10
2.07 Notes............................................................................................ 10
2.08 Optional Prepayments of Loans.................................................................... 10
2.09 Mandatory Prepayments and Reductions of Commitments.............................................. 11
2.10 Extension of Commitment Termination Date......................................................... 11
Section 3. Payments of Principal and Interest.................................................................. 13
3.01 Repayment of Loans............................................................................... 13
3.02 Interest......................................................................................... 13
Section 4. Payments; Pro Rata Treatment; Computations; Etc..................................................... 13
4.01 Payments......................................................................................... 13
</TABLE>
<PAGE> 4
<TABLE>
Page
----
<S> <C> <C>
4.02 Pro Rata Treatment............................................................................... 14
4.03 Computations..................................................................................... 14
4.04 Minimum Amounts.................................................................................. 15
4.05 Certain Notices.................................................................................. 15
4.06 Non-Receipt of Funds by the Administrative Agent................................................. 15
4.07 Sharing of Payments, Etc......................................................................... 16
Section 5. Yield Protection, Etc............................................................................... 17
5.01 Additional Costs................................................................................. 17
5.02 Limitation on Types of Loans..................................................................... 18
5.03 Illegality....................................................................................... 19
5.04 Treatment of Affected Loans...................................................................... 19
5.05 Compensation..................................................................................... 20
5.06 U.S. Taxes....................................................................................... 20
5.07 Replacement of Lenders........................................................................... 21
Section 6. Conditions Precedent................................................................................ 22
6.01 Effectiveness.................................................................................... 22
6.02 Initial and Subsequent Loans..................................................................... 23
Section 7. Representations and Warranties...................................................................... 24
7.01 Corporate Existence.............................................................................. 24
7.02 Financial Condition.............................................................................. 24
7.03 Litigation....................................................................................... 25
7.04 No Breach........................................................................................ 25
7.05 Action........................................................................................... 25
7.06 Approvals........................................................................................ 25
7.07 Taxes............................................................................................ 25
</TABLE>
<PAGE> 5
<TABLE>
Page
----
<S> <C> <C>
7.08 Use of Credit.................................................................................... 26
7.09 Special Purpose Company.......................................................................... 26
7.10 Capitalization................................................................................... 26
7.11 ERISA............................................................................................ 26
Section 8. Covenants of the Company............................................................................ 26
8.01 Financial Statements, Etc........................................................................ 26
8.02 Litigation....................................................................................... 27
8.03 Existence, Etc................................................................................... 27
8.04 Limited Purpose Company.......................................................................... 27
8.05 Use of Proceeds.................................................................................. 28
8.06 Modifications of Certain Documents............................................................... 28
Section 9. Events of Default................................................................................... 28
Section 10. The Administrative Agent........................................................................... 30
10.01 Appointment, Powers and Immunities.............................................................. 30
10.02 Reliance by Administrative Agent................................................................ 31
10.03 Defaults........................................................................................ 31
10.04 Rights as a Lender.............................................................................. 32
10.05 Indemnification................................................................................. 32
10.06 Non-Reliance on Administrative Agent and Other Lenders.......................................... 32
10.07 Failure to Act.................................................................................. 33
10.08 Resignation or Removal of Administrative Agent.................................................. 33
10.09 Consents under Other Credit Documents........................................................... 33
Section 11. Miscellaneous...................................................................................... 33
11.01 Waiver.......................................................................................... 33
11.02 Notices......................................................................................... 34
</TABLE>
<PAGE> 6
<TABLE>
Page
----
<S> <C> <C>
11.03 Amendments, Etc................................................................................. 34
11.04 Successors and Assigns.......................................................................... 34
11.05 Assignments and Participations.................................................................. 34
11.06 Survival........................................................................................ 36
11.07 Captions........................................................................................ 36
11.08 Counterparts.................................................................................... 36
11.09 Governing Law; Submission to Jurisdiction....................................................... 36
11.10 Waiver of Jury Trial............................................................................ 37
11.11 Treatment of Certain Information; Confidentiality............................................... 37
11.12 No Recourse..................................................................................... 38
EXHIBIT A
- Form of Note
EXHIBIT B
- Form of Borrowing Notice
EXHIBIT C-1
- Form of Company Pledge Agreement
EXHIBIT C-2
- Form of Parent Pledge Agreement
EXHIBIT D
- Form of Put Agreement
EXHIBIT E
- Form of Standby Purchase Agreement
EXHIBIT F
- Form of Opinion of Counsel to
the Company
EXHIBIT G
- Form of Opinion of Special New York
Counsel to Chase
EXHIBIT H
- Form of Confidentiality Agreement
EXHIBIT I
- Form of Assignment and Acceptance
</TABLE>
<PAGE> 7
-6-
CREDIT AGREEMENT dated as of August 16, 1996, between: SAF
FUNDING CORPORATION, a corporation duly organized and validly existing under the
laws of the State of Delaware (the "COMPANY"); each of the lenders that is a
signatory hereto identified under the caption "LENDERS" on the signature pages
hereto and each lender that becomes a "Lender" after the date hereof pursuant to
Section 11.05(b) hereof (individually, a "LENDER" and, collectively, the
"LENDERS"); and THE CHASE MANHATTAN BANK, a New York banking corporation, as
agent for the Lenders (in such capacity, together with its successors in such
capacity, the "ADMINISTRATIVE AGENT").
The Company has requested that the Lenders make loans to it in
an aggregate principal amount not exceeding $100,000,000 and the Lenders are
prepared to make such loans upon the terms and conditions hereof. Accordingly,
the parties hereto agree as follows:
Section 1. DEFINITIONS AND ACCOUNTING MATTERS.
1.01 CERTAIN DEFINED TERMS. As used herein, the following
terms shall have the following meanings (all terms defined in this Section 1.01
or in other provisions of this Agreement in the singular to have the same
meanings when used in the plural and VICE VERSA):
"APPLICABLE LENDING OFFICE" shall mean, for each Lender and
for each Type of Loan, the "Lending Office" of such Lender (or of an affiliate
of such Lender) designated for such Type of Loan on the signature pages hereof
or such other office of such Lender (or of an affiliate of such Lender) as such
Lender may from time to time specify to the Administrative Agent and the Company
as the office by which its Loans of such Type are to be made and maintained.
"APPLICABLE MARGIN" shall mean: (a) with respect to Base Rate
Loans, 0% per annum; and (b) with respect to Eurodollar Loans, 3/4 of 1% per
annum.
"BANKRUPTCY CODE" shall mean the Federal Bankruptcy Code of
1978, as amended from time to time.
"BASE RATE" shall mean, for any day, a rate per annum equal to
the higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the
Prime Rate for such day. Each change in any interest rate provided for herein
based upon the Base Rate resulting from a change in the Base Rate shall take
effect at the time of such change in the Base Rate.
"BASE RATE LOANS" shall mean Loans that bear interest at rates
based upon the Base Rate.
"BASIC DOCUMENTS" shall mean, collectively, the Credit
Documents, the Preferred Stock Certificates and the Standby Purchase Agreement.
"BASLE ACCORD" shall mean the proposals for risk-based capital
framework described by the Basle Committee on Banking Regulations and
Supervisory Practices in its paper entitled "International Convergence of
Capital Measurement and Capital Standards" dated July 1988, as amended, modified
and supplemented and in effect from time to time or any replacement thereof.
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"BORROWING NOTICE" shall mean a Borrowing Notice substantially
in the form of Exhibit B hereto.
"BUSINESS DAY" shall mean any day (a) on which commercial
banks are not authorized or required to close in New York City and (b) if such
day relates to a borrowing of, a payment or prepayment of principal of or
interest on, a Conversion of or into, or an Interest Period for, a Eurodollar
Loan or a notice by the Company with respect to any such borrowing, payment,
prepayment, Conversion or Interest Period, that is also a day on which dealings
in Dollar deposits are carried out in the London interbank market.
"CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"CHASE" shall mean The Chase Manhattan Bank and any successor
entity.
"CLOSING DATE" shall mean the first date upon which each of
the conditions precedent specified in Section 6.01 hereof shall have been
satisfied.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"COMMITMENT" shall mean, as to each Lender, the obligation of
such Lender to make Loans in an aggregate principal amount up to but not
exceeding the amount set opposite the name of such Lender on the signature pages
hereof under the caption "Commitment" or, in the case of a Person that becomes a
Lender pursuant to an assignment permitted under Section 11.05(b) hereof, as
specified in the respective instrument of assignment pursuant to which such
assignment is effected (as the same may be reduced at any time or from time to
time pursuant to Section 2.03 hereof).
"COMMITMENT TERMINATION DATE" shall mean June 30, 1997,
subject to extension as provided in Section 2.10 hereof.
"COMPANY PLEDGE AGREEMENT" shall mean a Pledge and Security
Agreement substantially in the form of Exhibit C-1 hereto between the Company
and the Administrative Agent, as the same shall be modified and supplemented and
in effect from time to time.
"CONTINUE", "CONTINUATION" and "CONTINUED" shall refer to the
continuation of a Eurodollar Loan from one Interest Period to the next Interest
Period.
"CONVERT", "CONVERSION" and "CONVERTED" shall refer to a
conversion of one Type of Loan into another Type of Loan, which may be
accompanied by the transfer by a Lender (at its sole discretion) of a Loan from
one Applicable Lending Office to another.
"CREDIT DOCUMENTS" shall mean, collectively, this Agreement,
the Notes, the Pledge Agreements and the Put Agreement.
"DEFAULT" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.
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"DIVIDEND PAYMENT" shall mean dividends (in cash, Property or
obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any shares of any
class of stock of the Company or of any warrants, options or other rights to
acquire the same (or to make any payments to any Person, such as "phantom stock"
payments, where the amount thereof is calculated with reference to the fair
market or equity value of the Company), but excluding dividends payable solely
in shares of common stock of the Company.
"DOLLARS" and "$" shall mean lawful money of the United States
of America.
"EQUITY RIGHTS" shall mean, with respect to any Person, any
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including, without limitation, any stockholders' or voting trust
agreements) for the issuance, sale, registration or voting of, or securities
convertible into, any additional shares of capital stock of any class, or
partnership or other ownership interests of any type in, such Person.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"ERISA AFFILIATE" shall mean any corporation or trade or
business that is a member of any group of organizations (i) described in Section
414(b) or (c) of the Code of which the Company is a member and (ii) solely for
purposes of potential liability under Section 302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and
Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of
which the Company is a member.
"EURODOLLAR BASE RATE" shall mean, with respect to any
Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded
upwards, if necessary, to the nearest 1/16 of 1%) quoted by Chase at
approximately 11:00 a.m. London time (or as soon thereafter as practicable) on
the date two Business Days prior to the first day of such Interest Period for
the offering by Chase to leading banks in the London interbank market of Dollar
deposits having a term comparable to such Interest Period and in an amount
comparable to the principal amount of the Eurodollar Loan to be made by Chase
for such Interest Period. If Chase is not participating in any Eurodollar Loans
during any Interest Period therefor, the Eurodollar Base Rate for such Loans for
such Interest Period shall be determined by reference to the amount of such
Loans that Chase would have made or had outstanding had it been participating in
such Loan during such Interest Period.
"EURODOLLAR LOANS" shall mean Loans that bear interest at
rates based on rates referred to in the definition of "Eurodollar Base Rate" in
this Section 1.01.
"EURODOLLAR RATE" shall mean, for any Eurodollar Loan for any
Interest Period therefor, a rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined by the Administrative Agent to be equal to
the Eurodollar Base Rate for such Loan for such Interest Period divided by 1
minus the Reserve Requirement (if any) for such Loan for such Interest Period.
"EVENT OF DEFAULT" shall have the meaning assigned to such
term in Section 9 hereof.
"EXISTING COMMITMENT TERMINATION DATE" shall have the meaning
assigned to such term in Section 2.10 hereof.
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"FEDERAL FUNDS RATE" shall mean, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, PROVIDED that (a) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day and (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate charged to Chase on such Business Day on such
transactions as determined by the Administrative Agent.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time.
"GUARANTEE" shall mean a guarantee, an endorsement, a
contingent agreement to purchase or to furnish funds for the payment or
maintenance of, or otherwise to be or become contingently liable under or with
respect to, the Indebtedness, other obligations, net worth, working capital or
earnings of any Person, or a guarantee of the payment of dividends or other
distributions upon the stock or equity interests of any Person, or an agreement
to purchase, sell or lease (as lessee or lessor) Property, products, materials,
supplies or services primarily for the purpose of enabling a debtor to make
payment of such debtor's obligations or an agreement to assure a creditor
against loss, and including, without limitation, causing a bank or other
financial institution to issue a letter of credit or other similar instrument
for the benefit of another Person, but excluding endorsements for collection or
deposit in the ordinary course of business. The terms "GUARANTEE" and
"GUARANTEED" used as a verb shall have a correlative meaning.
"INDEBTEDNESS" shall mean, for any Person: (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of Property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such Property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of Property or services; (c)
Indebtedness of others secured by a Lien on the Property of such Person, whether
or not the respective indebtedness so secured has been assumed by such Person;
(d) obligations of such Person in respect of letters of credit or similar
instruments issued or accepted by banks and other financial institutions for
account of such Person; (e) Capital Lease Obligations of such Person; and (f)
Indebtedness of others Guaranteed by such Person.
"INTEREST PERIOD" shall mean, with respect to any Eurodollar
Loan, each period commencing on the date such Eurodollar Loan is made or
Converted from a Base Rate Loan or (in the event of a Continuation) the last day
of the next preceding Interest Period for such Loan and ending on the
numerically corresponding day in the third calendar month thereafter, except
that each Interest Period that commences on the last Business Day of a calendar
month (or on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month. Notwithstanding the foregoing: (a) no
Interest Period may commence before and end after any Principal Payment Date
unless, after giving effect thereto, the aggregate principal amount of the Loans
having Interest Periods that end after such Principal Payment Date shall be
equal to or less than the aggregate principal amount of the Loans scheduled to
be outstanding after giving effect to the payments of principal required to be
made on such Principal Payment Date; (b) each Interest Period that would
otherwise end on a day that is not a Business Day shall end on the next
succeeding Business Day (or, if such next succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business Day); and (c)
notwithstanding clause (a) above, no Interest Period shall have a duration of
less than three months and, if the Interest Period for
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any Eurodollar Loan would otherwise be a shorter period, such Loan shall not be
available hereunder for such period.
"INTEREST RATE PROTECTION AGREEMENT" shall mean, for any
Person, an interest rate swap, cap or collar agreement or similar arrangement
between such Person and one or more financial institutions providing for the
transfer or mitigation of interest risks either generally or under specific
contingencies.
"INVESTMENT" shall mean, for any Person: (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of any
securities at a time when such securities are not owned by the Person entering
into such sale); (b) the making of any deposit with, or advance, loan or other
extension of credit to, any other Person (including the purchase of Property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such Property to such Person); (c) the entering into of any
Guarantee of, or other contingent obligation with respect to, Indebtedness or
other liability of any other Person and (without duplication) any amount
committed to be advanced, lent or extended to such Person; or (d) the entering
into of any Interest Rate Protection Agreement.
"LIEN" shall mean, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such Property. For purposes of this Agreement and the other Credit Documents, a
Person shall be deemed to own subject to a Lien any Property that it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
(other than an operating lease) relating to such Property.
"LOANS" shall mean the loans provided for in Section 2.01
hereof, which shall be Eurodollar Loans except as provided therein.
"MAJORITY LENDERS" shall mean Lenders having at least 66-2/3%
of the aggregate amount of the Commitments or, if the Commitments shall have
terminated, Lenders holding at least 66-2/3% of the aggregate unpaid principal
amount of the Loans; PROVIDED that, if at any time State Auto Mutual shall
acquire a portion (but less than all) of the Loans pursuant to the Put
Agreement, State Auto Mutual shall not be counted as a "Lender" for purposes of
determining the Majority Lenders under this Agreement.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined
as such in Section 3(37) of ERISA to which contributions have been made by the
Company and that is covered by Title IV of ERISA.
"NOTES" shall mean the promissory notes provided for by
Section 2.07 hereof and all promissory notes delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"PARENT" shall mean Broad Street Contract Services, Inc., a
Delaware corporation.
"PARENT PLEDGE AGREEMENT" shall mean a Pledge Agreement
substantially in the form of Exhibit C-2 hereto between the Parent and the
Administrative Agent, as the same shall be modified and supplemented and in
effect from time to time.
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"PERMITTED INVESTMENTS" shall mean: (a) direct obligations of
the United States of America, or of any agency thereof, or obligations
guaranteed as to principal and interest by the United States of America, or of
any agency thereof, in either case maturing not more than 90 days from the date
of acquisition thereof; (b) certificates of deposit issued by any bank or trust
company organized under the laws of the United States of America or any state
thereof and having capital, surplus and undivided profits of at least
$500,000,000, maturing not more than 90 days from the date of acquisition
thereof; and (c) commercial paper rated A-1 or better or P-1 by Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or
Moody's Investors Services, Inc., respectively, maturing not more than 90 days
from the date of acquisition thereof; in each case so long as the same (i)
provide for the payment of principal and interest (and not principal alone or
interest alone) and (ii) are not subject to any contingency regarding the
payment of principal or interest.
"PERSON" shall mean any individual, corporation, company,
voluntary association, partnership, limited liability company, joint venture,
trust, unincorporated organization or government (or any agency, instrumentality
or political subdivision thereof).
"PLAN" shall mean an employee benefit or other plan
established or maintained by the Company and that is covered by Title IV of
ERISA, other than a Multiemployer Plan.
"PLEDGE AGREEMENTS" shall mean the Company Pledge Agreement
and the Parent Pledge Agreement.
"POST-DEFAULT RATE" shall mean a rate per annum equal to 2%
PLUS the Base Rate as in effect from time to time PLUS the Applicable Margin for
Base Rate Loans, PROVIDED that, with respect to principal of a Eurodollar Loan
that shall become due (whether at stated maturity, by acceleration,
by optional or mandatory prepayment or otherwise) on a day other than the last
day of the Interest Period therefor, the "Post-Default Rate" shall be, for the
period from and including such due date to but excluding the last day of such
Interest Period, 2% PLUS the interest rate for such Loan as provided in Section
3.02(b) hereof and, thereafter, the rate provided for above in this definition.
"PREFERRED STOCK" shall mean the Class A Preferred Stock
issued from time to time by State Auto Financial to the Company under the
Standby Purchase Agreement.
"PREFERRED STOCK CERTIFICATES" shall mean the certificates
evidencing the Preferred Stock.
"PRIME RATE" shall mean the rate of interest from time to time
announced by Chase at its principal office in New York, New York as its prime
commercial lending rate.
"PRINCIPAL PAYMENT DATES" shall mean, with respect to any
Loan, each of the 3rd, 5th, 7th, 9th, 11th, 13th, 15th, 17th, 19th, 21st, 23rd
and 25th Quarterly Dates immediately following the making of such Loan.
"PROPERTY" shall mean any right or interest in or to property
of any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"PUT AGREEMENT" shall mean a Put Agreement substantially in
the form of Exhibit D hereto between the State Auto Obligors and the
Administrative Agent, as the same shall be modified and supplemented and in
effect from time to time.
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"QUARTERLY DATES" shall mean the last Business Day of March,
June, September and December in each year, the first of which shall be the first
such day after the date hereof.
"REDEMPTION VALUE" shall mean, with respect to any Preferred
Stock, the "Redemption Value" for such Preferred Stock set forth in the
Preferred Stock Certificates evidencing such Preferred Stock.
"REGULATIONS A, D, G, U AND X" shall mean, respectively,
Regulations A, D, G, U and X of the Board of Governors of the Federal Reserve
System (or any successor), as the same may be modified and supplemented and in
effect from time to time.
"REGULATORY CHANGE" shall mean, with respect to any Lender,
any change after the date hereof in Federal, state or foreign law or regulations
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or request applying to a class of
banks including such Lender of or under any Federal, state or foreign law or
regulations (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
"RESERVE REQUIREMENT" shall mean, for any Interest Period for
any Eurodollar Loan, the average maximum rate at which reserves (including,
without limitation, any marginal, supplemental or emergency reserves) are
required to be maintained during such Interest Period under Regulation D
by member banks of the Federal Reserve System in New York City with deposits
exceeding one billion Dollars against "Eurocurrency liabilities" (as such term
is used in Regulation D). Without limiting the effect of the foregoing, the
Reserve Requirement shall include any other reserves required to be maintained
by such member banks by reason of any Regulatory Change with respect to (a) any
category of liabilities that includes deposits by reference to which the
Eurodollar Base Rate is to be determined as provided in the definition of
"Eurodollar Base Rate" in this Section 1.01 or (b) any category of extensions of
credit or other assets that includes Eurodollar Loans.
"STANDBY PURCHASE AGREEMENT" shall mean the Standby Purchase
Agreement substantially in the form of Exhibit E hereto between State Auto
Financial and the Company, as the same shall be modified and supplemented and in
effect from time to time.
"STATE AUTO FINANCIAL" shall mean State Auto Financial
Corporation, an Ohio corporation.
"STATE AUTO MUTUAL" shall mean State Automobile Mutual
Insurance Company, an Ohio mutual insurance company.
"STATE AUTO OBLIGORS" shall mean State Auto Mutual and State
Auto Financial.
"STATE AUTO P&C" shall mean State Auto Property and Casualty
Insurance Company, a South Carolina corporation.
"SUBSIDIARY" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening of
any contingency) is
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at the time directly or indirectly owned or controlled by such Person or one or
more Subsidiaries of such Person or by such Person and one or more Subsidiaries
of such Person.
"TYPE" shall have the meaning assigned to such term in Section
1.03 hereof.
"U.S. PERSON" shall mean a citizen, national or resident of
the United States of America, a corporation, partnership or other entity created
or organized in or under any laws of the United States of America or any State
thereof, or any estate or trust that is subject to Federal income taxation
regardless of the source of its income.
1.02 ACCOUNTING TERMS AND DETERMINATIONS. Except as otherwise
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Lenders hereunder shall be
prepared, in accordance with GAAP. All calculations made for the purposes of
determining compliance with this Agreement shall (except as otherwise expressly
provided herein) be made by application of GAAP.
1.03 TYPES OF LOANS. Loans hereunder are distinguished by
"Type". The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or
a Eurodollar Loan, each of which constitutes a Type.
1.04 SUBSIDIARIES. The Company does not and will not have any
Subsidiaries.
Section 2. COMMITMENTS, LOANS, NOTES AND PREPAYMENTS.
2.01 LOANS. Each Lender severally agrees, on the terms and
conditions of this Agreement, to make one or more term loans to the Company in
Dollars on or before the Commitment Termination Date in an aggregate principal
amount up to but not exceeding the amount of the Commitment of such Lender.
Except as provided in Sections 5.02, 5.03 and 5.04 hereof and the last paragraph
of Section 9 hereof, all Loans hereunder shall be Eurodollar Loans. Loans paid
or prepaid may not be reborrowed.
2.02 BORROWINGS. The Company shall give the Administrative
Agent notice of each borrowing hereunder by delivering to the Administrative
Agent a Borrowing Notice containing the information provided in Section 4.05
hereof and otherwise duly completed. Not later than 1:00 p.m. New York time on
the date specified for each borrowing hereunder, each Lender shall make
available the amount of the Loan or Loans to be made by it on such date to the
Administrative Agent, at any account designated by the Administrative Agent, in
immediately available funds, for account of the Company. The amount so received
by the Administrative Agent shall, subject to the terms and conditions of this
Agreement, be made available to the Company by depositing the same, in
immediately available funds, in an account of the Company maintained with Chase
designated for such purpose.
2.03 CHANGES OF COMMITMENTS.
(a) The Company shall have the right at any time or from time
to time to terminate or reduce the aggregate unused amount of the Commitments;
PROVIDED that (i) the Company shall give notice of each such termination or
reduction as provided in Section 4.05 hereof and (ii) each partial reduction
shall be in an aggregate amount at least equal to $10,000,000 (or a larger
integral multiple of $5,000,000).
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(b) The aggregate amount of the Commitments shall
automatically reduce to zero on the Commitment Termination Date.
(c) The Commitments once terminated or reduced may not be
reinstated.
2.04 COMMITMENT FEE. The Company shall pay to the
Administrative Agent for account of each Lender a commitment fee on the daily
average unused amount of such Lender's Commitment, for the period from and
including the date hereof to but not including the earlier of the date such
Commitment is terminated and the Commitment Termination Date, at a rate per
annum equal to 1/4 of 1%. Accrued commitment fee shall be payable on each
Quarterly Date and on the earlier of the date the Commitments are terminated and
the Commitment Termination Date.
2.05 LENDING OFFICES. The Loans of each Type made by each
Lender shall be made and maintained at such Lender's Applicable Lending Office
for Loans of such Type.
2.06 SEVERAL OBLIGATIONS; REMEDIES INDEPENDENT. The failure of
any Lender to make any Loan to be made by it on the date specified therefor
shall not relieve any other Lender of its obligation to make its Loan on such
date, but neither any Lender nor the Administrative Agent shall be responsible
for the failure of any other Lender to make a Loan to be made by such other
Lender, and (except as otherwise provided in Section 4.06 hereof) no Lender
shall have any obligation to the Administrative Agent or any other Lender for
the failure by such Lender to make any Loan required to be made by such Lender.
The amounts payable by the Company at any time hereunder and under the Notes to
each Lender shall be a separate and independent debt and each Lender shall be
entitled to protect and enforce its rights arising out of this Agreement and the
Notes, and it shall not be necessary for any other Lender or the Administrative
Agent to consent to, or be joined as an additional party in, any proceedings for
such purposes.
2.07 NOTES.
(a) Each Loan made by each Lender shall be evidenced by a
single promissory note of the Company substantially in the form of Exhibit A
hereto, dated the date such Loan is made, payable to such Lender in a principal
amount equal to the amount of such Loan and otherwise duly completed.
(b) The date, amount, Type, interest rate and duration of
Interest Period (if applicable) of each Loan made by each Lender to the Company,
and each payment made on account of the principal thereof, shall be recorded by
such Lender on its books and, prior to any transfer of the Note held by it,
endorsed by such Lender on the schedule attached to such Note or any
continuation thereof; PROVIDED that the failure of such Lender to make any such
recordation (or any error by such Lender in making any such recordation) or
endorsement shall not affect the obligations of the Company to make a payment
when due of any amount owing hereunder or under such Note in respect of the
Loans.
(c) No Lender shall be entitled to have its Notes substituted
or exchanged for any reason, or subdivided for promissory notes of lesser
denominations, except in connection with a permitted assignment of all or any
portion of such Lender's Commitment, Loans and Notes pursuant to Section 11.05
hereof (and, if requested by any Lender, the Company agrees to so exchange any
Notes).
2.08 OPTIONAL PREPAYMENTS OF LOANS. Subject to Section 4.04
hereof, the Company shall have the right to prepay Loans at any time or from
time to time, PROVIDED that: (a) the Company shall give the Administrative Agent
notice of each such prepayment as provided in Section 4.05 hereof (and, upon the
date specified in any such notice of prepayment, the amount to be prepaid shall
become due and payable hereunder); (b) Eurodollar Loans may be prepaid only on
the last day of an Interest Period for
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such Loans; and (c) prepayments of the Loans shall be applied to the
installments of the Loans pro rata in accordance with the respective principal
amounts thereof outstanding on the date of such prepayment.
2.09 MANDATORY PREPAYMENTS AND REDUCTIONS OF COMMITMENTS. If
(a) the Company shall sell, assign, transfer or otherwise dispose of all or any
portion of the Preferred Stock, (b) the Administrative Agent shall sell the
Preferred Stock to State Auto Mutual pursuant to the Put Agreement or (c) the
Preferred Stock shall at any time be repurchased, redeemed or otherwise retired
by State Auto Financial (whether pursuant to the terms of such Preferred Stock
or otherwise), the Company will prepay Loans in a principal amount equal to the
aggregate Redemption Value of the Preferred Stock so sold, assigned, transferred
or otherwise disposed of. In addition, if the aggregate outstanding principal
amount of the Loans shall at any time exceed either (i) the aggregate amount of
the Commitments or (ii) the aggregate Redemption Value of the Preferred Stock
issued and outstanding at such time, the Company will prepay the Loans in an
amount equal to such excess. Prepayments of the Loans shall be applied to the
installments of the Loans in the inverse order or the maturities of the
installments thereof.
2.10 EXTENSION OF COMMITMENT TERMINATION DATE.
(a) The Company may, by notice to the Administrative Agent
(which shall promptly notify the Lenders) given not less than 60 days and not
more the 90 days prior to the Commitment Termination Date then in effect (the
"EXISTING COMMITMENT TERMINATION DATE"), request that the Lenders extend the
Commitment Termination Date for an additional 364 days from the Existing
Commitment Termination Date; PROVIDED that in no event may the Company request
more than two such extensions. Each Lender, acting in its sole discretion,
shall, by notice (which shall be irrevocable) to the Company and the
Administrative Agent given no earlier than the date that is 30 days prior to the
Existing Commitment Termination Date (herein, the "CONSENT DATE") and no later
than the date that is three Business Days after the Consent Date, advise the
Company whether or not such Lender agrees to such extension; PROVIDED that each
Lender that determines not to extend the Commitment Termination Date (a
"NON-EXTENDING LENDER") shall notify the Administrative Agent (which shall
notify the Lenders) of such fact promptly after such determination (but in any
event no later than the date three Business Days after the Consent Date) and any
Lender that does not advise the Company on or prior to the date three Business
Days after the Consent Date that such Lender agrees to such extension shall be
deemed to be a Non-Extending Lender. The election of any Lender to agree to such
extension shall not obligate any other Lender to so agree.
(b) The Company may, at any time prior to the Existing
Commitment Termination Date, replace any Non-Extending Lender, by giving not
less than ten Business Days' prior notice to the Administrative Agent (which
shall promptly notify such Non-Extending Lender), that it intends to replace
such Non-Extending Lender with respect to its rights and obligations (including,
without limitation, its Commitments) as a "Lender" under this Agreement
(collectively, the "TRANSFERRED INTEREST") with one or more banks or other
financial institutions (including, but not limited to, any other Lender or an
affiliate of any Lender) selected by the Company and acceptable to the
Administrative Agent (each, a "REPLACEMENT LENDER"). Upon the Existing
Commitment Termination Date (and as a condition to the extension thereof), (i)
the Company shall pay or cause to be paid to such Non-Extending Lender being
replaced an amount equal to all fees and other amounts then owing to such
Non-Extending Lender hereunder and under any other Basic Document in respect of
the Transferred Interest (all or a portion of which amount may constitute
consideration for an assignment by such Non-Extending Lender of all or a portion
of the Transferred Interest) and (ii) such Non-Extending Lender shall assign to
each Replacement Lender, pursuant to an Assignment and Acceptance substantially
in the form of Exhibit I hereto, a portion of the Transferred Interest specified
by the Company, whereupon (x) each Replacement Lender shall become a "Lender"
for all purposes of this Agreement having the Commitments in the
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amount of such Non-Extending Lender's Commitments assumed by
it and all of the rights and obligations under this Agreement of "Lender(s)"
holding the Transferred Interest and (y) such Non-Extending Lender shall cease
to be responsible or liable for, and shall cease to be entitled to the rights
and benefits of, all or any portion of the Transferred Interest (except to the
extent provided in Section 11.06 hereof).
(c) If (and only if) the sum of the aggregate amount of the
Commitments of Lenders having agreed so to extend the Existing Commitment
Termination Date on or prior to the Existing Commitment Termination Date PLUS
the aggregate amount of the Commitments of the Replacement Lenders shall equal
or exceed 50% of the aggregate amount of the Commitments in effect immediately
prior to the Existing Commitment Termination Date, then, effective as of the
Existing Commitment Termination Date, the Existing Commitment Termination Date
shall be extended to the date falling 364 days after the Existing Commitment
Termination Date (except that, if such date is not a Business Day, such
Commitment Termination Date as so extended shall be the next preceding Business
Day); PROVIDED that the Commitment of each Non-Extending Lender shall terminate
on the Existing Commitment Termination Date.
(d) Notwithstanding the foregoing clauses (a) through (c), the
extension of the Existing Commitment Termination Date shall not be effective
with respect to any Lender unless:
(i) no Default shall have occurred and be continuing on
each of the date of the notice requesting such extension (the "REQUEST
DATE"), the Consent Date and the Existing Commitment Termination Date;
(ii) each of the representations and warranties made by
the Company in Section 7 hereof shall be true and complete on and as of
each of the Request Date, the Consent Date and the Existing Commitment
Termination Date with the same force and effect as if made on and as of
such date (or, if any such representation or warranty is expressly
stated to have been made as of a specific date, as of such specific
date);
(iii) no Loans shall be outstanding on each of the
Request Date, the Consent Date and the Existing Commitment Termination
Date;
(iv) on each of the Request Date and the Existing
Commitment Termination Date, the Administrative Agent shall have
received the respective certificate required to be delivered by State
Auto Mutual on such date pursuant to Section 4.20 of the Put Agreement;
and
(v) without duplication of the obligation of the
Company to make the payments required by clause (b)(i) of this Section
2.10 with respect to any Non-Extending Lender being replaced hereunder,
the Company shall pay or cause to paid to each Non-Extending Lender an
amount equal to all fees and other amounts then owing to such
Non-Extending Lender hereunder.
Section 3. PAYMENTS OF PRINCIPAL AND INTEREST.
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3.01 REPAYMENT OF LOANS. The Company hereby promises to pay to
the Administrative Agent for account of each Lender the principal of each Loan
made by such Lender in twelve installments payable on the Principal Payment
Dates for such Loan. The first eleven of such installments shall be equal to
one-twelfth of the principal amount of such Loan and the twelfth such
installment shall be equal to the balance thereof.
3.02 INTEREST. The Company hereby promises to pay to the
Administrative Agent for account of each Lender interest on the unpaid principal
amount of each Loan made by such Lender for the period from and including the
date of such Loan to but excluding the date such Loan shall be paid in full, at
the following rates per annum:
(a) during such periods as such Loan is a Base Rate Loan, the
Base Rate (as in effect from time to time) PLUS the Applicable Margin
and
(b) during such periods as such Loan is a Eurodollar Loan, for
each Interest Period relating thereto, the Eurodollar Rate for such
Loan for such Interest Period PLUS the Applicable Margin.
Notwithstanding the foregoing, the Company hereby promises to pay to the
Administrative Agent for account of each Lender interest at the applicable
Post-Default Rate on any principal of any Loan made by such Lender and on any
other amount payable by the Company hereunder or under the Notes held by such
Lender to or for account of such Lender that shall not be paid in full when due
(whether at stated maturity, by acceleration, by mandatory prepayment or
otherwise), for the period from and including the due date thereof to but
excluding the date the same is paid in full. Accrued interest on each Loan shall
be payable (i) in the case of a Base Rate Loan, quarterly on the Quarterly
Dates, (ii) in the case of a Eurodollar Loan, on the last day of each Interest
Period therefor and (iii) in the case of any Loan, upon the payment or
prepayment thereof or the Conversion of such Loan to a Loan of another Type (but
only on the principal amount so paid, prepaid or Converted), except that
interest payable at the Post-Default Rate shall be payable from time to time on
demand. Promptly after the determination of any interest rate provided for
herein or any change therein, the Administrative Agent shall give notice thereof
to the Lenders to which such interest is payable and to the Company.
Section 4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
4.01 PAYMENTS.
(a) Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by the Company
under this Agreement and the Notes, shall be made in Dollars, in immediately
available funds, without deduction, set-off or counterclaim, to the
Administrative Agent at an account designated by the Administrative Agent in
writing to the Company, not later than 1:00 p.m. New York time on the date on
which such payment shall become due (each such payment made after such time on
such due date to be deemed to have been made on the next succeeding Business
Day).
(b) Any Lender for whose account any such payment is to be
made may (but shall not be obligated to) debit the amount of any such payment
that is not made by such time to any ordinary deposit account of the Company
with such Lender (with notice to the Company and the Administrative Agent),
PROVIDED that such Lender's failure to give such notice shall not affect the
validity thereof.
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(c) The Company shall, at the time of making each payment
under this Agreement or any Note for account of any Lender, specify to the
Administrative Agent (which shall so notify the intended recipient(s) thereof)
the Loans or other amounts payable by the Company hereunder to which such
payment is to be applied (and in the event that the Company fails to so specify,
or if an Event of Default has occurred and is continuing, the Administrative
Agent may distribute such payment to the Lenders for application in such manner
as it or the Majority Lenders, subject to Section 4.02 hereof, may determine to
be appropriate).
(d) Each payment received by the Administrative Agent under
this Agreement or any Note for account of any Lender shall be paid by the
Administrative Agent promptly to such Lender, in immediately available funds,
for account of such Lender's Applicable Lending Office for the Loan or other
obligation in respect of which such payment is made.
(e) If the due date of any payment under this Agreement or any
Note would otherwise fall on a day that is not a Business Day, such date shall
be extended to the next succeeding Business Day, and interest shall be payable
for any principal so extended for the period of such extension.
4.02 PRO RATA TREATMENT. Except to the extent otherwise
provided herein: (a) each borrowing from the Lenders under Section 2.01 hereof
shall be made from the Lenders, each payment of commitment fee under Section
2.04 hereof shall be made for account of the Lenders, and each termination or
reduction of the amount of the Commitments under Section 2.03 hereof shall be
applied to the respective Commitments of the Lenders, pro rata according to the
amounts of their respective Commitments; (b) except as otherwise provided in
Section 5.04 hereof, Eurodollar Loans having the same Interest Period shall be
allocated pro rata among the Lenders according to the amounts of their
respective Commitments (in the case of the making of Loans) or their respective
Loans (in the case of Conversions and Continuations of Loans); (c) each payment
or prepayment of principal of Loans by the Company or upon the receipt of
proceeds by the Administrative Agent in connection with a put of the Preferred
Stock under the Put Agreement shall be made for account of the Lenders pro rata
in accordance with the respective unpaid principal amounts of the Loans held by
them; and (d) each payment of interest on Loans by the Company shall be made for
account of the Lenders pro rata in accordance with the amounts of interest on
such Loans then due and payable to the respective Lenders.
4.03 COMPUTATIONS. Interest on Eurodollar Loans and commitment
fee shall be computed on the basis of a year of 360 days and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which payable and interest on Base Rate Loans shall be computed on the basis of
a year of 365 or 366 days, as the case may be, and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which payable. Notwithstanding the foregoing, for each day that the Base Rate is
calculated by reference to the Federal Funds Rate, interest on Base Rate Loans
shall be computed on the basis of a year of 360 days and actual days elapsed.
4.04 MINIMUM AMOUNTS. Except for mandatory prepayments made
pursuant to Section 2.09 hereof, each borrowing and partial prepayment of
principal of Loans shall be in an aggregate amount at least equal to $10,000,000
or a larger integral multiple of $1,000,000 (borrowing or prepayments of Loans
of different Types or, in the case of Eurodollar Loans, having different
Interest Periods at the same time hereunder to be deemed separate borrowings and
prepayments for purposes of the foregoing, one for each Type or Interest
Period).
4.05 CERTAIN NOTICES. Notices by the Company to the
Administrative Agent of terminations or reductions of the Commitments and of
borrowings and optional prepayments of Loans
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shall be irrevocable and shall be effective only if received by the
Administrative Agent not later than 10:00 a.m. New York time on the third
Business Day prior to the date of the relevant termination, reduction, borrowing
or prepayment. Each such notice of termination or reduction shall specify the
amount of the Commitments to be terminated or reduced. Each such notice of
borrowing or optional prepayment shall specify the Loans to be borrowed or
prepaid and the amount (subject to Section 4.04 hereof) of each Loan to be
borrowed or prepaid and the date of borrowing or optional prepayment (which
shall be a Business Day). The Administrative Agent shall promptly notify the
Lenders of the contents of each such notice.
4.06 NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE AGENT. Unless
the Administrative Agent shall have been notified by a Lender or the Company
(the "PAYOR") prior to the date on which the Payor is to make payment to the
Administrative Agent of (in the case of a Lender) the proceeds of a Loan to be
made by such Lender hereunder or (in the case of the Company) a payment to the
Administrative Agent for account of one or more of the Lenders hereunder (such
payment being herein called the "REQUIRED PAYMENT"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to the Administrative Agent, the Administrative Agent may assume that
the Required Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available to the
intended recipient(s) on such date; and, if the Payor has not in fact made the
Required Payment to the Administrative Agent, the recipient(s) of such payment
shall, on demand, repay to the Administrative Agent the amount so made available
together with interest thereon in respect of each day during the period
commencing on the date (the "ADVANCE DATE") such amount was so made available by
the Administrative Agent until the date the Administrative Agent recovers such
amount at a rate per annum equal to the Federal Funds Rate for such day and, if
such recipient(s) shall fail promptly to make such payment, the Administrative
Agent shall be entitled to recover such amount, on demand, from the Payor,
together with interest as aforesaid, PROVIDED that if neither the recipient(s)
nor the Payor shall return the Required Payment to the Administrative Agent
within three Business Days of the Advance Date, then, retroactively to the
Advance Date, the Payor and the recipient(s) shall each be obligated to pay
interest on the Required Payment as follows:
(i) if the Required Payment shall represent a payment
to be made by the Company to the Lenders, the Company and the
recipient(s) shall each be obligated retroactively to the Advance Date
to pay interest in respect of the Required Payment at the Post-Default
Rate (without duplication of the obligation of the Company under
Section 3.02 hereof to pay interest on the Required Payment at the
Post-Default Rate), it being understood that the return by the
recipient(s) of the Required Payment to the Administrative Agent shall
not limit such obligation of the Company under said Section 3.02 to
pay interest at the Post-Default Rate in respect of the Required
Payment and
(ii) if the Required Payment shall represent proceeds of
a Loan to be made by the Lenders to the Company, the Payor and the
Company shall each be obligated retroactively to the Advance Date to
pay interest in respect of the Required Payment pursuant to whichever
of the rates specified in Section 3.02 hereof is applicable to the Type
of such Loan, it being understood that the return by the Company of the
Required Payment to the Administrative Agent shall not limit any claim
the Company may have against the Payor in respect of such Required
Payment.
4.07 SHARING OF PAYMENTS, ETC.
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(a) The Company agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim a Lender may
otherwise have, each Lender shall be entitled, at its option (to the fullest
extent permitted by law), to set off and apply any deposit (general or special,
time or demand, provisional or final), or other indebtedness, held by it for the
credit or account of the Company at any of its offices, in Dollars or in any
other currency, against any principal of or interest on any of such Lender's
Loans or any other amount payable to such Lender hereunder, that is not paid
when due (regardless of whether such deposit or other indebtedness are then due
to the Company), in which case it shall promptly notify the Company and the
Administrative Agent thereof, PROVIDED that such Lender's failure to give such
notice shall not affect the validity thereof.
(b) If any Lender shall obtain from the Company payment of any
principal of or interest on any Loan owing to it or payment of any other amount
under this Agreement or any other Credit Document through the exercise of any
right of set-off, banker's lien or counterclaim or similar right or otherwise
(other than from the Administrative Agent as provided herein), and, as a result
of such payment, such Lender shall have received a greater percentage of the
principal of or interest on the Loans or such other amounts then due hereunder
or thereunder by the Company to such Lender than the percentage received by any
other Lender, it shall promptly purchase from such other Lenders participations
in (or, if and to the extent specified by such Lender, direct interests in) the
Loans or such other amounts, respectively, owing to such other Lenders (or in
interest due thereon, as the case may be) in such amounts, and make such other
adjustments from time to time as shall be equitable, to the end that all the
Lenders shall share the benefit of such excess payment (net of any expenses that
may be incurred by such Lender in obtaining or preserving such excess payment)
pro rata in accordance with the unpaid principal of and/or interest on the Loans
or such other amounts, respectively, owing to each of the Lenders. To such end
all the Lenders shall make appropriate adjustments among themselves (by the
resale of participations sold or otherwise) if such payment is rescinded or must
otherwise be restored.
(c) The Company agrees that any Lender so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Lender were a direct holder of Loans or other amounts (as the case
may be) owing to such Lender in the amount of such participation (or direct
interest).
(d) Nothing contained herein shall require any Lender to
exercise any such right or shall affect the right of any Lender to exercise, and
retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of the Company. If, under any applicable bankruptcy,
insolvency or other similar law, any Lender receives a secured claim in lieu of
a set-off to which this Section 4.07 applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders entitled under this Section 4.07 to
share in the benefits of any recovery on such secured claim.
Section 5. YIELD PROTECTION, ETC.
5.01 ADDITIONAL COSTS.
(a) The Company shall pay directly to each Lender from time to
time such amounts as such Lender may determine to be necessary to compensate
such Lender for any costs that such Lender determines are attributable to its
making or maintaining of any Eurodollar Loans or its obligation to make any
Eurodollar Loans hereunder, or any reduction in any amount receivable by such
Lender hereunder in respect of any of such Loans or such obligation (such
increases in costs and reductions in amounts receivable being herein called
"ADDITIONAL COSTS"), resulting from any Regulatory Change that:
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(i) shall subject any Lender (or its Applicable Lending
Office for any of such Loans) to any tax, duty or other charge in
respect of such Loans or its Notes or changes the basis of taxation of
any amounts payable to such Lender under this Agreement or its Notes in
respect of any of such Loans (excluding changes in the rate of tax on
the overall net income of such Lender or of such Applicable Lending
Office by the jurisdiction in which such Lender has its principal
office or such Applicable Lending Office); or
(ii) imposes or modifies any reserve, special deposit or
similar requirements (other than the Reserve Requirement utilized in
the determination of the Eurodollar Rate for such Loan) relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, such Lender (including, without limitation, any of such
Loans or any deposits referred to in the definition of "Eurodollar Base
Rate" in Section 1.01 hereof), or any commitment of such Lender
(including, without limitation, the Commitment of such Lender
hereunder); or
(iii) imposes any other condition affecting this
Agreement or its Notes (or any of such extensions of credit or
liabilities) or its Commitment.
If any Lender requests compensation from the Company under this Section 5.01(a),
the Company may, by notice to such Lender (with a copy to the Administrative
Agent), suspend the obligation of such Lender thereafter to make or Continue
Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans, until the
Regulatory Change giving rise to such request ceases to be in effect (in which
case the provisions of Section 5.04 hereof shall be applicable), PROVIDED that
such suspension shall not affect the right of such Lender to receive the
compensation so requested.
(b) Without limiting the effect of the foregoing provisions of
this Section 5.01 (but without duplication), the Company shall pay directly to
each Lender from time to time on request such amounts as such Lender may
determine to be necessary to compensate such Lender (or, without duplication,
the bank holding company of which such Lender is a subsidiary) for any increased
costs that it determines are attributable to the maintenance by such Lender (or
any Applicable Lending Office or such bank holding company), pursuant to any law
or regulation or any interpretation, directive or request (whether or not having
the force of law and whether or not failure to comply therewith would be
unlawful) of any court or governmental or monetary authority (i) following any
Regulatory Change or (ii) implementing any risk-based capital guideline or other
requirement (whether or not having the force of law and whether or not the
failure to comply therewith would be unlawful) hereafter issued by any
government or governmental or supervisory authority implementing at the national
level the Basle Accord, of capital in respect of its Commitment or Loans (such
compensation to include, without limitation, an amount equal to any reduction of
the rate of return on assets or equity of such Lender (or any Applicable Lending
Office or such bank holding company) to a level below that which such Lender (or
any Applicable Lending Office or such bank holding company) could have achieved
but for such law, regulation, interpretation, directive or request).
(c) Each Lender shall notify the Company of any event
occurring after the date hereof entitling such Lender to compensation under
paragraph (a) or (b) of this Section 5.01 as promptly as practicable, but in any
event within 45 days, after such Lender obtains actual knowledge thereof;
PROVIDED that (i) if any Lender fails to give such notice within 45 days after
it obtains actual knowledge of such an event, such Lender shall, with respect to
compensation payable pursuant to this Section 5.01
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in respect of any costs resulting from such event, only be entitled to payment
under this Section 5.01 for costs incurred from and after the date 45 days prior
to the date that such Lender does give such notice and (ii) each Lender will
designate a different Applicable Lending Office for the Loans of such Lender
affected by such event if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the sole opinion of such
Lender, be disadvantageous to such Lender, except that such Lender shall have no
obligation to designate an Applicable Lending Office located in the United
States of America. Each Lender will furnish to the Company a certificate setting
forth the basis and amount of each request by such Lender for compensation under
paragraph (a) or (b) of this Section 5.01. Determinations and allocations by any
Lender for purposes of this Section 5.01 of the effect of any Regulatory Change
pursuant to paragraph (a) of this Section 5.01, or of the effect of capital
maintained pursuant to paragraph (b) of this Section 5.01, on its costs or rate
of return of maintaining Loans or its obligation to make Loans, or on amounts
receivable by it in respect of Loans, and of the amounts required to compensate
such Lender under this Section 5.01, shall be conclusive, PROVIDED that such
determinations and allocations are made on a reasonable basis.
5.02 LIMITATION ON TYPES OF LOANS. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any Eurodollar
Base Rate for any Interest Period:
(a) the Administrative Agent determines, which determination
shall be conclusive, that quotations of interest rates for the relevant
deposits referred to in the definition of "Eurodollar Base Rate" in
Section 1.01 hereof are not being provided in the relevant amounts or
for the relevant maturities for purposes of determining rates of
interest for Eurodollar Loans as provided herein; or
(b) the Majority Lenders determine, which determination shall
be conclusive, and notify the Administrative Agent that the relevant
rates of interest referred to in the definition of "Eurodollar Base
Rate" in Section 1.01 hereof upon the basis of which the rate of
interest for Eurodollar Loans for such Interest Period is to be
determined are not likely adequately to cover the cost to such Lenders
of making or maintaining Eurodollar Loans for such Interest Period;
then the Administrative Agent shall give the Company and each Lender prompt
notice thereof and, so long as such condition remains in effect, the Lenders
shall be under no obligation to make additional Eurodollar Loans, to Continue
Eurodollar Loans or to Convert Base Rate Loans into Eurodollar Loans, and the
Company shall, on the last day(s) of the then current Interest Period(s) for the
outstanding Eurodollar Loans, either prepay such Loans or Convert such Loans
into Base Rate Loans in accordance with Section 2.08 hereof. Upon such condition
ceasing to be in effect, the Administrative Agent or the Majority Lenders
(through the Agent), as the case may, shall notify the Company thereof,
whereupon each Lender's Base Rate Loans shall automatically be Converted, on the
date three Business Days after the date of such notice, into Eurodollar Loans.
5.03 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain Eurodollar
Loans hereunder (and, in the sole opinion of such Lender, the designation of a
different Applicable Lending Office would either not avoid such unlawfulness or
would be disadvantageous to such Lender), then such Lender shall promptly notify
the Company thereof (with a copy to the Administrative Agent) and such Lender's
obligation to make or Continue, or to Convert Base Rate Loans into, Eurodollar
Loans shall be suspended until such time as such Lender may again make and
maintain Eurodollar Loans (in which case the provisions of Section 5.04 hereof
shall be applicable).
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5.04 TREATMENT OF AFFECTED LOANS. If the obligation of any
Lender to make Eurodollar Loans or to Continue, or to Convert Base Rate Loans
into, Eurodollar Loans shall be suspended pursuant to Section 5.01 or 5.03
hereof, such Lender's Eurodollar Loans shall be automatically Converted into
Base Rate Loans on the last day(s) of the then current Interest Period(s) for
Eurodollar Loans (or, in the case of a Conversion resulting from a circumstance
described in Section 5.03 hereof, on such earlier date as such Lender may
specify to the Company with a copy to the Administrative Agent) and, unless and
until such Lender gives notice as provided below that the circumstances
specified in Section 5.01 or 5.03 hereof that gave rise to such Conversion no
longer exist:
(a) to the extent that such Lender's Eurodollar Loans have
been so Converted, all payments and prepayments of principal that would
otherwise be applied to such Lender's Eurodollar Loans shall be applied
instead to its Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by
such Lender as Eurodollar Loans shall be made or Continued instead as
Base Rate Loans, and all Base Rate Loans of such Lender that would
otherwise be Converted into Eurodollar Loans shall remain as Base Rate
Loans.
If such Lender gives notice to the Company with a copy to the Administrative
Agent that the circumstances specified in Section 5.01 or 5.03 hereof that gave
rise to the Conversion of such Lender's Eurodollar Loans pursuant to this
Section 5.04 no longer exist (which such Lender agrees to do promptly upon such
circumstances ceasing to exist) at a time when Eurodollar Loans made by other
Lenders are outstanding, such Lender's Base Rate Loans shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Eurodollar Loans, to the extent necessary so that, after giving
effect thereto, all Base Rate and Eurodollar Loans are allocated among the
Lenders ratably (as to principal amounts, Types and Interest Periods) in
accordance with their respective Commitments.
5.05 COMPENSATION. The Company shall pay to the Administrative
Agent for account of any Lender, upon the request of such Lender through the
Administrative Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of such Lender) to compensate it for any loss, cost or
expense that such Lender determines is attributable to:
(a) any payment, mandatory or optional prepayment or
Conversion of a Eurodollar Loan made by such Lender for any reason
(including, without limitation, the acceleration of the Loans pursuant
to Section 9 hereof) on a date other than the last day of the Interest
Period for such Loan; or
(b) any failure by the Company for any reason (including,
without limitation, the failure of any of the conditions precedent
specified in Section 6 hereof to be satisfied) to borrow a Eurodollar
Loan from such Lender on the date for such borrowing specified in the
relevant notice of borrowing given pursuant to Section 2.02 hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid,
Converted or not borrowed for the period from the date of such payment,
prepayment, Conversion or failure to borrow to the last day of the then current
Interest Period for such
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Loan (or, in the case of a failure to borrow, the Interest Period for such Loan
that would have commenced on the date specified for such borrowing) at the
applicable rate of interest for such Loan provided for herein over (ii) the
amount of interest that otherwise would have accrued on such principal amount at
a rate per annum equal to the interest component of the amount such Lender would
have bid in the London interbank market for Dollar deposits of leading banks in
amounts comparable to such principal amount and with maturities comparable to
such period (as reasonably determined by such Lender).
5.06 U.S. TAXES.
(a) The Company agrees to pay to each Lender that is not a
U.S. Person such additional amounts as are necessary in order that the net
payment of any amount due to such non-U.S. Person hereunder after deduction for
or withholding in respect of any U.S. Taxes imposed with respect to such payment
(or in lieu thereof, payment of such U.S. Taxes by such non-U.S. Person), will
not be less than the amount stated herein to be then due and payable, PROVIDED
that the foregoing obligation to pay such additional amounts shall not apply:
(i) to any payment to any Lender hereunder unless such
Lender is, on the date hereof (or on the date it becomes a Lender
hereunder as provided in Section 11.05(b) hereof) and on the date of
any change in the Applicable Lending Office of such Lender, either
entitled to submit a Form 1001 (relating to such Lender and entitling
it to a complete exemption from withholding on all interest to be
received by it hereunder in respect of the Loans) or Form 4224
(relating to all interest to be received by such Lender hereunder in
respect of the Loans), or
(ii) to any U.S. Taxes imposed solely by reason of the
failure by such non-U.S. Person to comply with applicable
certification, information, documentation or other reporting
requirements concerning the nationality, residence, identity or
connections with the United States of America of such non-U.S. Person
if such compliance is required by statute or regulation of the United
States of America as a precondition to relief or exemption from such
U.S. Taxes.
For the purposes of this Section 5.06(a), (A) "U.S. TAXES" shall mean any
present or future tax, assessment or other charge or levy imposed by or on
behalf of the United States of America or any taxing authority thereof or
therein (but excluding any taxes on the overall net income of a Lender imposed
as a result of a present or former connection between such Lender and the United
States of America or any taxing authority thereof or therein (except a
connection arising solely from such Lender having executed, delivered or
performed its obligations or received a payment under or enforced this Agreement
or the Notes), (B) "FORM 1001" shall mean Form 1001 (Ownership, Exemption, or
Reduced Rate Certificate) of the Department of the Treasury of the United States
of America and (C) "FORM 4224" shall mean Form 4224 (Exemption from Withholding
of Tax on Income Effectively Connected with the Conduct of a Trade or Business
in the United States) of the Department of the Treasury of the United States of
America (or in relation to either such Form such successor and related forms as
may from time to time be adopted by the relevant taxing authorities of the
United States of America to document a claim to which such Form relates). Each
of the Forms referred to in the foregoing clauses (B) and (C) shall include such
successor and related forms as may from time to time be adopted by the relevant
taxing authorities of the United States of America to document a claim to which
such Form relates.
(b) Within 30 days after paying any amount to the
Administrative Agent or any Lender from which it is required by law to make any
deduction or withholding, and within 30 days after it is
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required by law to remit such deduction or withholding to any relevant taxing or
other authority, the Company shall deliver to the Administrative Agent for
delivery to such non-U.S. Person evidence satisfactory to such Person of such
deduction, withholding or payment (as the case may be).
5.07 REPLACEMENT OF LENDERS. If any Lender requests
compensation pursuant to Section 5.01, 5.05 or 5.06 hereof, or any Lender's
obligation to make or Continue, or to Convert Loans of any Type into, any other
Type of Loan shall be suspended pursuant to Section 5.01 or 5.03 hereof (any
such Lender so requesting such compensation or whose obligations are so
suspended, being herein called a "RELEVANT LENDER"), the Company, upon three
Business Days notice given when no Default shall have occurred and be
continuing, may require that such Relevant Lender transfer all of its right,
title and interest under this Agreement and such Relevant Lender's Notes to any
bank or other financial institution identified by the Company that is
satisfactory to the Administrative Agent, in its discretion reasonably exercised
(a "PROPOSED LENDER") if (i) such Proposed Lender agrees to assume all of the
obligations of such Relevant Lender hereunder, and to purchase all of such
Relevant Lender's Loans hereunder and under the other Basic Documents for
consideration equal to the aggregate outstanding principal amount of such
Relevant Lender's Loans, together with interest thereon to the date of such
purchase, and satisfactory arrangements are made for payment to such Relevant
Lender of all other amounts payable hereunder to such Relevant Lender on or
prior to the date of such transfer (including any fees accrued hereunder and any
amounts that would be payable under Section 5.05 hereof as if all of such
Relevant Lender's Loans were being prepaid in full on such date) and (ii) to the
extent such Proposed Lender has requested compensation pursuant to Section 5.01,
5.05 or 5.06 hereof, such Proposed Lender's aggregate requested compensation, if
any, paid pursuant to Section 5.01, 5.05 or 5.06 hereof with respect to such
Relevant Lender's Loans is lower than that of the Relevant Lender. Subject to
the provisions of Section 11.06(b) hereof, such Proposed Lender shall be a
"Lender" for all purposes hereunder. Without prejudice to the survival of any
other agreement of the Company hereunder, the agreements of the Company
contained in Sections 5.01, 5.05, 5.06 and 11 hereof (without duplication of any
payments made to such Relevant Lender by the Company or the Proposed Lender)
shall survive for the benefit of such Relevant Lender under this Section 5.07
with respect to the time prior to such replacement.
Section 6. CONDITIONS PRECEDENT.
6.01 EFFECTIVENESS. The effectiveness of this Agreement is
subject to the conditions precedent that the Administrative Agent shall have
received the following documents (with sufficient copies for each Lender), each
of which shall be satisfactory to the Administrative Agent (and to the extent
specified below, to each Lender) in form and substance:
(a) THIS AGREEMENT. This Agreement, duly executed and
delivered by the Company, each Lender and the Administrative Agent.
(b) PLEDGE AGREEMENTS. The Company Pledge Agreement, duly
executed and delivered by the Company and the Administrative Agent,
and the Parent Pledge Agreement, duly executed and delivered by the
Parent and the Administrative Agent and the certificates identified in
Annex 1 thereto, accompanied by undated stock powers executed in
blank. In addition, the Company and the Parent shall have taken such
other action (including, without limitation, delivering to the
Administrative Agent, for filing, Uniform Commercial Code financing
statements) as the Administrative Agent shall have requested in order
to perfect the security interests created pursuant to the Pledge
Agreements.
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(c) PUT AGREEMENT. The Put Agreement, duly executed and
delivered by the State Auto Obligors and the Administrative Agent.
(d) STANDBY PURCHASE AGREEMENT. The Standby Purchase Agreement,
duly executed and delivered by the State Auto Obligors and the
Company.
(e) CORPORATE DOCUMENTS. Certified copies of the charter and
by-laws (or equivalent documents) of each of the Company and the
Parent (each, an "OBLIGOR") and of all corporate
authority for such Obligor (including, without limitation, board of
director resolutions and evidence of the incumbency, including specimen
signatures, of officers) with respect to the execution, delivery and
performance of such of the Basic Documents to which such Obligor is
intended to be a party and each other document to be delivered by the
Company from time to time in connection herewith and the Loans
hereunder (and the Administrative Agent and each Lender may
conclusively rely on such certificate until it receives notice in
writing from such Obligor to the contrary).
(f) OPINION OF COUNSEL TO THE COMPANY. An opinion, dated the
Closing Date, of Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel
to the Company and the Parent, substantially in form of Exhibit F
hereto and covering such other matters as the Administrative Agent or
any Lender may reasonably request (and the Company hereby instructs
such counsel to deliver such opinion to the Lenders and the
Administrative Agent).
(g) OPINION OF SPECIAL NEW YORK COUNSEL TO CHASE. An opinion,
dated the Closing Date, of Milbank, Tweed, Hadley & McCloy, special New
York counsel to Chase, substantially in the form of Exhibit G hereto
(and Chase hereby instructs such counsel to deliver such opinion to the
Lenders).
(h) DOCUMENTS REQUIRED BY PUT AGREEMENT. Each of the
documents required to be delivered by State Auto Mutual pursuant to
Section 4.18 of the Put Agreement.
(i) OTHER DOCUMENTS. Such other documents as the
Administrative Agent or any Lender or special New York counsel to
Chase may reasonably request.
The effectiveness of this Agreement is also subject to the payment by the
Company of such fees as the State Auto Obligors shall have agreed to pay or
deliver to any Lender or the Administrative Agent in connection herewith,
including, without limitation, the reasonable fees and expenses of Milbank,
Tweed, Hadley & McCloy, special New York counsel to Chase, in connection with
the negotiation, preparation, execution and delivery of this Agreement and the
other Basic Documents and the making of the Loans hereunder (to the extent that
statements for such fees and expenses have been delivered to State Auto Mutual).
<PAGE> 28
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6.02 INITIAL AND SUBSEQUENT LOANS. The obligation of the
Lenders to make any Loan to the Company upon the occasion of each borrowing
hereunder (including the initial borrowing) is subject to the further conditions
precedent that:
(a) the Administrative Agent shall have received a Borrowing
Notice, duly completed and executed;
(b) each Lender shall have received a Note, duly completed
and executed for such Lender;
(c) concurrently therewith, (i) the Company shall receive
Preferred Stock having an aggregate liquidation preference equal to the
aggregate principal amount of such Loan and shall deliver the same,
together with an undated stock power executed in blank, to the
Administrative Agent in pledge subject to the Company Pledge Agreement
and (ii) all of the conditions precedent to the purchase of the
Preferred Stock under the Standby Purchase Agreement shall be satisfied
(and the Administrative Agent shall receive evidence satisfactory to it
that such conditions precedent shall be so satisfied) or (with the
consent of the Administrative Agent and each Lender) waived;
(d) the Administrative Agent shall have received each of the
documents required to be delivered by State Auto Mutual pursuant to
Section 4.19 of the Put Agreement;
(e) the Administrative Agent shall have received such other
documents as the Administrative Agent or any Lender or special New York
counsel to Chase may reasonably request (including, without limitation,
opinions of counsel to the State Auto Obligors relating to the issuance
of the Preferred Stock); and
(f) both immediately prior to the making of such Loan and also
after giving effect thereto and to the intended use thereof:
(i) no Default shall have occurred and be continuing;
and
(ii) the representations and warranties made by the
Company in Section 7 hereof shall be true and complete on and
as of the date of the making of such Loan with the same force
and effect as if made on and as of such date (or, if any such
representation or warranty is expressly stated to have been
made as of a specific date, as of such specific date).
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Section 7. REPRESENTATIONS AND WARRANTIES. The Company
represents and warrants to the Administrative Agent and the Lenders that:
7.01 CORPORATE EXISTENCE. The Company: (a) is a corporation,
partnership or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization; (b) has all
requisite corporate or other power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on
its business as now being or as proposed to be conducted; (c) is qualified to do
business and is in good standing in all jurisdictions in which the nature of the
business conducted by it makes such qualification necessary; and (d) has no
Subsidiaries.
7.02 FINANCIAL CONDITION. The Company has heretofore furnished
to each of the Lenders the pro forma balance sheet of the Company as at the date
hereof. Such pro forma balance sheet presents fairly in all material respects
the financial condition of the Company as at said date in accordance with GAAP.
The Company does not have on the date hereof and will not have on the Closing
Date any material contingent liabilities, liabilities for taxes, unusual forward
or long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or provided for in
said pro forma balance sheet as at said date. Since the date of said pro forma
balance sheet, there has been no material adverse change in the condition
(financial or otherwise), operations, business or prospects of the Company from
that set forth in said pro forma balance sheet as at said date.
7.03 LITIGATION. There are no legal or arbitral proceedings,
or any proceedings by or before any governmental or regulatory authority or
agency, now pending or (to the knowledge of the Company) threatened against the
Company or any of its Property.
7.04 NO BREACH. None of the execution and delivery of this
Agreement and the Notes and the other Credit Documents to which is a party, the
consummation of the transactions herein and therein contemplated or compliance
with the terms and provisions hereof and thereof will conflict with or result in
a breach of, or require any consent under, the charter or by-laws of the
Company, or any applicable law or regulation, or any order, writ, injunction or
decree of any court or governmental authority or agency, or any agreement or
instrument to which the Company is a party or by which it or any of its Property
is bound or to which it is subject, or constitute a default under any such
agreement or instrument, or (except for the Liens created pursuant to the
Company Pledge Agreement) result in the creation or imposition of any Lien upon
any Property of the Company pursuant to the terms of any such agreement or
instrument.
7.05 ACTION. The Company has all necessary corporate power,
authority and legal right to execute, deliver and perform its obligations under
each of the Credit Documents to which it is a party; the execution, delivery and
performance by the Company of each of the Credit Documents to which it is a
party have been duly authorized by all necessary corporate action on its part
(including, without limitation, any required shareholder approvals); and this
Agreement has been duly and validly executed and delivered by the Company and
constitutes, and each of the Notes and the other Credit Documents to which it is
a party when executed and delivered (in the case of the Notes, for value) will
constitute, its legal, valid and binding obligation, enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar
laws of general applicability affecting the enforcement of creditors' rights and
(b) the application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
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7.06 APPROVALS. No authorizations, approvals or consents of,
and no filings or registrations with, any governmental or regulatory authority
or agency, or any securities exchange, are necessary for the execution, delivery
or performance by the Company of this Agreement or any of the other Credit
Documents to which it is a party or for the legality, validity or enforceability
hereof or thereof.
7.07 TAXES. As of the date hereof, the Company has not been
required to file any Federal or other tax returns. As of the date of each
borrowing, the Company will have filed all Federal income tax returns and all
other material tax returns (if any) that are required to be filed by it and has
paid all taxes due pursuant to such returns or pursuant to any assessment
received by the Company. The charges, accruals and reserves on the books of the
Company in respect of taxes and other governmental charges are, in the opinion
of the Company, adequate.
7.08 USE OF CREDIT. No part of the proceeds of any Loan will
be used to buy or carry Margin Stock (as such term is defined in Regulations G,
U and X) in violation of Regulation G, U or X. The Preferred Stock does not
constitute Margin Stock (as so defined).
7.09 SPECIAL PURPOSE COMPANY. On the date hereof, the
Company is not engaged in any business or transaction other than as permitted by
Section 8.04 hereof.
7.10 CAPITALIZATION. The authorized capital stock of the
Company consists, on the date hereof, of an aggregate of 1000 shares of common
stock, no par value, of which 1000 shares are duly and validly issued and
outstanding, each of which shares is fully paid and nonassessable. As of the
date hereof, there are no outstanding Equity Rights with respect to the Company
and there are no outstanding obligations of the Company to repurchase, redeem,
or otherwise acquire any shares of capital stock of the Company nor are there
any outstanding obligations of the Company to make payments to any Person, such
as "phantom stock" payments, where the amount thereof is calculated with
reference to the fair market value or equity value of the Company.
7.11 ERISA. The Company does not have any ERISA Affiliates.
The Company does not maintain or contribute to any Plan or Multiemployer Plan.
Section 8. COVENANTS OF THE COMPANY. The Company covenants and
agrees with the Lenders and the Administrative Agent that, so long as any
Commitment or Loan is outstanding and until payment in full of all amounts
payable by the Company hereunder:
8.01 FINANCIAL STATEMENTS, ETC. The Company shall deliver to
each of the Lenders:
(a) as soon as available and in any event within 45 days after
the end of each quarterly fiscal period of each fiscal year of the
Company, statements of income retained earnings and cash flows of the
Company for such period and for the period from the beginning of the
respective fiscal year to the end of such period, and the related
balance sheet of the Company as at the end of such period, setting
forth in each case in comparative form the corresponding figures for
the corresponding periods in the preceding fiscal year (except that,
(i) in the case of balance sheets, such comparison shall be to the last
day of the prior fiscal year and (ii) comparative information shall not
be required in the absence of a preceding fiscal year or a
corresponding period in a preceding fiscal year), accompanied by a
certificate of a senior officer of the Company, which certificate shall
state that said financial statements present fairly in all
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material respects the financial condition and results of operations of
the Company in accordance with GAAP, as at the end of, and for, such
period (subject to normal year-end audit adjustments);
(b) promptly after the Company knows or has reason to believe
that any Default has occurred, a notice of such Default stating that
such notice is a "Notice of Default" and describing the same in
reasonable detail and, together with such notice or as soon thereafter
as possible, a description of the action that the Company has taken or
proposes to take with respect thereto;
(c) promptly after its receipt thereof, copies of all written
notices, requests, directions, instructions or other communications
received by the Company from any State Auto Obligor under the Standby
Purchase Agreement or otherwise; and
(d) from time to time such other information regarding the
financial condition, operations, business or prospects of the Company
as any Lender or the Administrative Agent may reasonably request.
The Company will furnish to each Lender, at the time it furnishes each set of
financial statements pursuant to paragraph (a) above, a certificate of a senior
officer of the Company to the effect that no Default has occurred and is
continuing (or, if any Default has occurred and is continuing, describing the
same in reasonable detail and describing the action that the Company has taken
or proposes to take with respect thereto).
8.02 LITIGATION. The Company will promptly give to each Lender
notice of all legal or arbitral proceedings, and of all proceedings by or before
any governmental or regulatory authority or agency, and any material development
in respect of such legal or other proceedings, affecting the Company.
8.03 EXISTENCE, ETC. The Company will:
(a) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises;
(b) comply in all material respects with the requirements of
all applicable laws, rules, regulations and orders of governmental or
regulatory authorities;
(c) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any
of its Property prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the payment of
which is being contested in good faith and by proper proceedings and
against which adequate reserves are being maintained;
(d) maintain all of its Properties used or useful in its
business in good working order and condition, ordinary wear and tear
excepted;
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(e) keep adequate records and books of account, in which
complete entries will be made in accordance with GAAP; and
(f) permit representatives of any Lender or the Administrative
Agent, during normal business hours, to examine, copy and make extracts
from its books and records, to inspect any of its Properties, and to
discuss its business and affairs with its officers, all to the extent
reasonably requested by such Lender or the Administrative Agent (as the
case may be).
8.04 LIMITED PURPOSE COMPANY. Notwithstanding anything herein
to the contrary, the Company shall not:
(a) create, incur, assume or have outstanding any Indebtedness
or other liabilities or obligations except for obligations under or in
respect of the Credit Documents;
(b) own any Property except for the Preferred Stock and
dividends thereon;
(c) enter into any transaction of merger, consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution);
(d) create, incur or permit to exist any Lien (other than the
Lien created by the Company Pledge Agreement) on or in respect of, or
convey, sell, lease, assign, transfer or otherwise dispose of, any of
its Property;
(e) make or hold any Investment, except operating deposit
accounts with banks and Permitted Investments;
(f) declare or make any Dividend Payment at any time; or
(g) otherwise engage in any business or transaction other than
the transactions contemplated by (and consistent with) the Basic
Documents and incidental thereto.
8.05 USE OF PROCEEDS. The Company will use the proceeds of the
Loans hereunder solely to finance the purchase from State Auto Financial of the
Preferred Stock under the Standby Purchase Agreement (in compliance with all
applicable legal and regulatory requirements); PROVIDED that neither the
Administrative Agent nor any Lender shall have any responsibility as to the use
of any of such proceeds.
8.06 MODIFICATIONS OF CERTAIN DOCUMENTS. The Company will not
consent to any modification, supplement or waiver of any of the provisions of,
or assignment of any rights or obligations of any other Person under, any Basic
Document without the prior consent of the Administrative Agent (with the
approval of the Majority Lenders).
<PAGE> 33
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Section 9. EVENTS OF DEFAULT. If one or more of the following
events (herein called "EVENTS OF DEFAULT") shall occur and be continuing:
(a) The Company shall default in the payment when due (whether
at stated maturity or upon mandatory or optional prepayment) of any
principal of or interest on any Loan, any fee or any other amount
payable by it hereunder or under any other Credit Document to which it
is a party; or
(b) Any representation, warranty or certification made or
deemed made herein or in any other Credit Document to which the Company
or the Parent is a party (or in any modification or supplement hereto
or thereto) by the Company or the Parent, or any certificate furnished
to any Lender or the Administrative Agent pursuant to the provisions
hereof or thereof, shall prove to have been false or misleading as of
the time made or furnished in any material respect; or
(c) The Company shall default in the performance of any of its
obligations under any of Sections 8.04, 8.05 or 8.06 hereof; the
Company or the Parent shall default in the performance of any of its
obligations under the Company Pledge Agreement or the Parent Pledge
Agreement, as the case may be; or the Company or the Parent shall
default in the performance of any of its other obligations in this
Agreement or any other Credit Document to which it is a party and such
default shall continue unremedied for a period of 30 or more days after
the occurrence of such default; or
(d) The Company or the Parent shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts
become due; or
(e) The Company or the Parent shall (i) apply for or consent
to the appointment of, or the taking of possession by, a receiver,
custodian, trustee, examiner or liquidator of itself or of all or a
substantial part of its Property, (ii) make a general assignment for
the benefit of its creditors, (iii) commence a voluntary case under the
Bankruptcy Code, (iv) file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization,
liquidation, dissolution, arrangement or winding-up, or composition or
readjustment of debts, (v) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Bankruptcy Code or (vi)
take any corporate action for the purpose of effecting any of the
foregoing; or
(f) A proceeding or case shall be commenced, without the
application or consent of the Company or the Parent, in any court of
competent jurisdiction, seeking (i) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or
readjustment of its debts, (ii) the appointment of a receiver,
custodian, trustee, examiner, liquidator or the like of the Company or
the Parent or of all or any substantial part of its respective Property
or (iii) similar relief in respect of the Company or the Parent under
any law relating to bankruptcy, insolvency, reorganization, winding-up,
or composition or adjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree approving
or ordering any of the
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foregoing shall be entered and continue unstayed and in effect, for a
period of 60 or more days; or an order for relief against the Company
shall be entered in an involuntary case under the Bankruptcy Code; or
(g) The Parent shall fail to own and control, beneficially
(free and clear of all Liens other than Liens created pursuant to the
Basic Documents), 100% of the capital stock issued by the Company
(irrespective of whether or not at the time securities or other
ownership interests issued by the Company or any other class or classes
might have voting power by reason of the happening of any contingency);
or
(h) The Liens created by the Pledge Agreements shall at any
time not constitute valid and perfected Liens on the collateral
intended to be covered thereby (to the extent perfection by filing,
registration, recordation or possession is required herein or therein)
in favor of the Administrative Agent, free and clear of all other
Liens, or, except for expiration in accordance with its terms, either
Pledge Agreement shall for whatever reason be terminated or cease to be
in full force and effect, or the enforceability thereof shall be
contested by the Company or the Parent; or
(i) A Put Event under, and as defined in, the Put Agreement;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (e) or (f) of this Section 9 with respect to the Company, the
Administrative Agent may and, upon request of the Majority Lenders, will, by
notice to the Company, terminate the Commitments and/or declare the principal
amount then outstanding of, and the accrued interest on, the Loans and all other
amounts payable by the Company hereunder and under the Notes (including, without
limitation, any amounts payable under Section 5.05 hereof) to be forthwith due
and payable, whereupon such amounts shall be immediately due and payable without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Company; and (2) in the case of the occurrence of
an Event of Default referred to in clause (e) or (f) of this Section 9 with
respect to the Company, the Commitments shall automatically be terminated and
the principal amount then outstanding of, and the accrued interest on, the Loans
and all other amounts payable by the Company hereunder and under the Notes
(including, without limitation, any amounts payable under Section 5.05 hereof)
shall automatically become immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by the Company.
Without limiting the rights and remedies of the Lenders under
Section 9 hereof, in the event that any Event of Default shall have occurred and
be continuing, the Administrative Agent may (and at the request of the Majority
Lenders shall) give a notice to the Company specifying that Eurodollar Loans
shall no longer be available hereunder, in which event all Loans shall be
Converted (on the last day(s) of the respective Interest Periods therefor) into
or Continued as, as the case may be, Base Rate Loans.
Section 10. THE ADMINISTRATIVE AGENT.
10.01 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby
appoints and authorizes the Administrative Agent to act as its agent hereunder
and under the other Credit Documents with such powers as are specifically
delegated to the Administrative Agent by the terms of this
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Agreement and of the other Credit Documents, together with such other powers as
are reasonably incidental thereto. The Administrative Agent (which term as used
in this sentence and in Section 10.05 and the first sentence of Section 10.06
hereof shall include reference to its affiliates and its own and its affiliates'
officers, directors, employees and agents):
(a) shall have no duties or responsibilities except those
expressly set forth in this Agreement and in the other Credit
Documents, and shall not by reason of this Agreement or any other
Credit Document be a trustee for any Lender;
(b) shall not be responsible to the Lenders for any recitals,
statements, representations or warranties contained in this Agreement
or in any other Credit Document, or in any certificate or other
document referred to or provided for in, or received by any of them
under, this Agreement or any other Credit Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement, any Note or any other Credit Document or any other
document referred to or provided for herein or therein or for any
failure by the Company or any other Person to perform any of its
obligations hereunder or thereunder;
(c) shall not, except to the extent expressly instructed by
the Majority Lenders with respect to collateral security under the
Pledge Agreements, be required to initiate or conduct any litigation or
collection proceedings hereunder or under any other Credit Document;
and
(d) shall not be responsible for any action taken or omitted
to be taken by it hereunder or under any other Credit Document or under
any other document or instrument referred to or provided for herein or
therein or in connection herewith or therewith, except for its own
gross negligence or willful misconduct.
The Administrative Agent may employ agents and attorneys-in-fact and shall not
be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith. The Administrative Agent may
deem and treat the payee of a Note as the holder thereof for all purposes hereof
unless and until a notice of the assignment or transfer thereof shall have been
filed with the Administrative Agent, together with the consent of the Company to
such assignment or transfer (to the extent required by Section 11.05(b) hereof).
Each Lender hereby approves the terms of the Put Agreement and agrees to be
bound thereby including, without limitation, Section 5.10(b) of the Put
Agreement and authorizes and directs the Administrative Agent to enter into the
Put Agreement on behalf of such Lender.
10.02 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative
Agent shall be entitled to rely upon any certification, notice or other
communication (including, without limitation, any thereof by telephone,
telecopy, telegram or cable) reasonably believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and statements of legal counsel, independent accountants and
other experts selected by the Administrative Agent. As to any matters not
expressly provided for by this Agreement or any other Credit Document, the
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or thereunder in accordance with instructions
given by the Majority Lenders, and such instructions of the Majority Lenders and
any action taken or failure to act pursuant thereto shall be binding on all of
the Lenders.
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10.03 DEFAULTS. The Administrative Agent shall not be deemed
to have knowledge or notice of the occurrence of a Default unless the
Administrative Agent has received notice from a Lender or the Company specifying
such Default and stating that such notice is a "Notice of Default". In the event
that the Administrative Agent receives such a notice of the occurrence of a
Default, the Administrative Agent shall give prompt notice thereof to the
Lenders. The Administrative Agent shall (subject to Section 10.07 hereof) take
such action with respect to such Default as shall be directed by the Majority
Lenders, PROVIDED that, unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall deem advisable in the best interest of the Lenders
except to the extent that this Agreement expressly requires that such action be
taken, or not be taken, only with the consent or upon the authorization of the
Majority Lenders or all of the Lenders.
10.04 RIGHTS AS A LENDER. With respect to its Commitment and
the Loans made by it, Chase (and any successor acting as Administrative Agent)
in its capacity as a Lender hereunder shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
acting as the Administrative Agent, and the term "Lender" or "Lenders" shall,
unless the context otherwise indicates, include the Administrative Agent in its
individual capacity. Chase (and any successor acting as Administrative Agent)
and its affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money to, make investments in and generally engage in any
kind of banking, trust or other business with the Company (and any of its
Affiliates) as if it were not acting as the Administrative Agent, and Chase (and
any such successor) and its affiliates may accept fees and other consideration
from the Company for services in connection with this Agreement or otherwise
without having to account for the same to the Lenders.
10.05 INDEMNIFICATION. The Lenders agree to indemnify the
Administrative Agent (to the extent not reimbursed under Section 5.03 of the Put
Agreement, but without limiting the obligations of the State Auto Obligors under
said Section 5.03) ratably in accordance with the aggregate principal amount of
the Loans held by the Lenders (or, if no Loans are at the time outstanding,
ratably in accordance with their respective Commitments), for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against the Administrative Agent (including
by any Lender) arising out of or by reason of any investigation in or in any way
relating to or arising out of this Agreement or any other Credit Document or any
other documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby (including, without limitation, the
costs and expenses that the State Auto Obligors are obligated to pay under
Section 5.03 of the Put Agreement, but excluding, unless a Default has occurred
and is continuing, normal administrative costs and expenses incident to the
performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or thereof or of any such other documents, PROVIDED that no Lender
shall be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified.
10.06 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS.
Each Lender agrees that it has, independently and without reliance on the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of the
Company and decision to enter into this Agreement and that it will,
independently and without reliance upon the Administrative Agent or any other
Lender, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own analysis and decisions in taking or not
taking action under this Agreement or under any other Credit Document. The
Administrative Agent shall not be required to keep itself informed as to the
performance or observance
<PAGE> 37
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by the Company, the Parent or any State Auto Obligor of this Agreement or any of
the other Basic Documents or any other document referred to or provided for
herein or therein or to inspect the Properties or books of the Company. Except
for notices, reports and other documents and information expressly required to
be furnished to the Lenders by the Administrative Agent hereunder or under the
Pledge Agreements, the Administrative Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Company (or any
of its affiliates) that may come into the possession of the Administrative Agent
or any of its affiliates.
10.07 FAILURE TO ACT. Except for action expressly required of
the Administrative Agent hereunder and under the other Credit Documents, the
Administrative Agent shall in all cases be fully justified in failing or
refusing to act hereunder and thereunder unless it shall receive further
assurances to its satisfaction from the Lenders of their indemnification
obligations under Section 10.05 hereof against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action.
10.08 RESIGNATION OR REMOVAL OF ADMINISTRATIVE AGENT. Subject
to the appointment and acceptance of a successor Administrative Agent as
provided below, the Administrative Agent may resign at any time by giving notice
thereof to the Lenders and the Company, and the Administrative Agent may be
removed at any time with or without cause by the Majority Lenders. Upon any such
resignation or removal, the Majority Lenders shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall have
been so appointed by the Majority Lenders and shall have accepted such
appointment within 30 days after the retiring Administrative Agent's giving of
notice of resignation or the Majority Lenders' removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
the Lenders, appoint a successor Administrative Agent, that shall be a bank that
has an office in New York, New York with a combined capital and surplus of at
least $500,000,000. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. After any retiring Administrative Agent's resignation or
removal hereunder as Administrative Agent, the provisions of this Section 10
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Administrative Agent.
10.09 CONSENTS UNDER OTHER CREDIT DOCUMENTS. Except as
otherwise provided in Section 11.03 hereof with respect to this Agreement, the
Administrative Agent may, with the prior consent of the Majority Lenders (but
not otherwise), consent to any modification, supplement or waiver under any of
the other Credit Documents or the Standby Purchase Agreement, PROVIDED that
without the prior consent of each Lender, the Administrative Agent shall not
(except as provided herein or in the other Credit Documents) terminate any
Credit Document, release either State Auto Obligor from its liability under the
Put Agreement, release any collateral or otherwise terminate any Lien under any
Credit Document providing for collateral security, agree to additional
obligations being secured by such collateral security (unless the Lien in for
such additional obligation shall be junior to the Lien in favor of the other
obligations secured by such Credit Document) or modify, supplement or waive any
provision in Section 3 of the Standby Purchase Agreement.
Section 11. MISCELLANEOUS.
<PAGE> 38
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11.01 WAIVER. No failure on the part of the Administrative
Agent or any Lender to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege under this Agreement or
any Note shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under this Agreement or any Note
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.
11.02 NOTICES. All notices, requests and other communications
provided for herein (including, without limitation, any modifications of, or
waivers, requests or consents under, this Agreement) shall be given or made in
writing (including, without limitation, by telecopy) delivered to the intended
recipient at the "Address for Notices" specified below its name on the signature
pages hereof); or, as to any party, at such other address as shall be designated
by such party in a notice to each other party. Except as otherwise provided in
this Agreement, all such communications shall be deemed to have been duly given
when transmitted by telecopier or personally delivered or, in the case of a
mailed notice, upon receipt, in each case given or addressed as aforesaid.
11.03 AMENDMENTS, ETC. Except as otherwise expressly provided
in this Agreement, any provision of this Agreement may be modified or
supplemented only by an instrument in writing signed by the Company and the
Majority Lenders, or by the Company and the Administrative Agent acting with the
consent of the Majority Lenders, and any provision of this Agreement may be
waived by the Majority Lenders or by the Administrative Agent acting with the
consent of the Majority Lenders; PROVIDED that: (a) no modification, supplement
or waiver shall, unless by an instrument signed by all of the Lenders or by the
Administrative Agent acting with the consent of all of the Lenders: (i) (except
as provided in Section 2.10 hereof) increase, or extend the term of, the
Commitments, or extend the time or waive any requirement for the reduction or
termination of the Commitments, (ii) extend the date fixed for the payment of
principal of or interest on any Loan or any fee hereunder, (iii) reduce the
amount of any such payment of principal, (iv) reduce the rate at which interest
is payable thereon or any fee is payable hereunder, (v) alter the rights or
obligations of the Company to prepay Loans, (vi) alter the manner in which
payments or prepayments of principal, interest or other amounts hereunder shall
be applied as between the Lenders or Types of Loans, (vii) alter the terms of
this Section 11.03, (viii) modify the definition of the term "Majority Lenders"
or modify in any other manner the number or percentage of the Lenders required
to make any determinations or waive any rights hereunder or to modify any
provision hereof, or (ix) waive any of the conditions precedent set forth in
Section 6.01 hereof; and (b) any modification or supplement of Section 10
hereof, or of any of the rights or duties of the Administrative Agent hereunder,
shall require the consent of the Administrative Agent.
11.04 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11.05 ASSIGNMENTS AND PARTICIPATIONS.
(a) The Company may not assign any of its rights or
obligations hereunder or under the Notes without the prior consent of all of the
Lenders and the Administrative Agent.
(b) Each Lender may assign any of its Loans, its Notes, and
its Commitment (but only with the consent of, in the case of its outstanding
Commitment, the Company, State Auto Mutual and the Administrative Agent,
provided that no such consent shall be unreasonably withheld); PROVIDED that
<PAGE> 39
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(i) no such consent by the Company, the Administrative
Agent or the State Auto Obligors shall be required in the case of any
assignment to another Lender;
(ii) except to the extent the Company and the
Administrative Agent shall otherwise consent, any such partial
assignment (other than to another Lender) shall be in an amount at
least equal to $5,000,000;
(iii) each such assignment by a Lender of its Loans,
Notes or Commitment shall be made in such manner so that the same
portion of its Loans, Notes and Commitment is assigned to the
respective assignee; and
(iv) upon each such assignment, the assignor and
assignee shall deliver to the Company and the Administrative Agent an
Assignment and Acceptance substantially in the form of Exhibit I
hereto, duly completed and executed.
Upon execution and delivery by the assignor and the assignee to the Company and
the Administrative Agent of such Assignment and Acceptance, consent thereto by
the Company, the Administrative Agent and State Auto Mutual to the extent
required above and acceptance thereof by the Administrative Agent, the assignee
shall have, to the extent of such assignment (unless otherwise consented to by
the Company and the Administrative Agent), the obligations, rights and benefits
of a Lender hereunder holding the Commitment and Loans (or portions thereof)
assigned to it and specified in such Assignment and Acceptance (in addition to
the Commitment and Loans, if any, theretofore held by such assignee) and the
assigning Lender shall, to the extent of such assignment, be released from the
Commitment (or portion thereof) so assigned. Upon each such assignment the
assigning Lender shall pay the Administrative Agent an assignment fee of $3,000.
(c) A Lender may sell or agree to sell to one or more other
Persons (each a "PARTICIPANT") a participation in all or any part of any Loans
held by it, or in its Commitment, PROVIDED that such Participant shall not have
any rights or obligations under this Agreement or any Note or any other Credit
Document (the Participant's rights against such Lender in respect of such
participation to be those set forth in the agreements executed by such Lender in
favor of the Participant). All amounts payable by the Company to any Lender
under Section 5 hereof in respect of Loans held by it, and its Commitment, shall
be determined as if such Lender had not sold or agreed to sell any
participations in such Loans and Commitment, and as if such Lender were funding
each of such Loan and Commitment in the same way that it is funding the portion
of such Loan and Commitment in which no participations have been sold. In no
event shall a Lender that sells a participation agree with the Participant to
take or refrain from taking any action hereunder or under any other Credit
Document except that such Lender may agree with the Participant that it will
not, without the consent of the Participant, agree to (i) increase or extend the
term of such Lender's Commitment, (ii) extend the date fixed for the payment of
principal of or interest on the related Loan or Loans or any portion of any fee
hereunder payable to the Participant, (iii) reduce the amount of any such
payment of principal, (iv) reduce the rate at which interest is payable thereon,
or any fee hereunder payable to the Participant, to a level below the rate at
which the Participant is entitled to receive such interest or fee or (v) consent
to any modification, supplement or waiver hereof or of any of the other Credit
Documents to the extent that the same, under Section 10.09 or 11.03 hereof,
requires the consent of each Lender.
<PAGE> 40
- 39 -
(d) In addition to the assignments and participations
permitted under the foregoing provisions of this Section 11.05, any Lender may
(without notice to the Company, the State Auto Obligors, the Administrative
Agent or any other Lender and without payment of any fee) (i) assign and pledge
all or any portion of its Loans and its Notes to any Federal Reserve Bank as
collateral security pursuant to Regulation A and any Operating Circular issued
by such Federal Reserve Bank and (ii) assign all or any portion of its rights
under this Agreement and its Loans and its Notes to an affiliate. No such
assignment shall release the assigning Lender from its obligations hereunder.
(e) A Lender may furnish any information concerning the
Company in the possession of such Lender from time to time to assignees and
participants (including prospective assignees and participants), subject,
however, to the provisions of Section 11.11(b) hereof.
(f) Anything in this Section 11.05 to the contrary
notwithstanding, no Lender may assign or participate any interest in any Loan
held by it hereunder to the Company or any of its Affiliates or to any State
Auto Obligor (except pursuant to the Put Agreement) without the prior consent of
each Lender.
11.06 SURVIVAL. The obligations of the Company under Sections
5.01, 5.05 and 5.06 hereof, and the obligations of the Lenders under Section
10.05 hereof, shall survive the repayment of the Loans and the termination of
the Commitments (including, with respect to any Lender that does not agree to
the extension of the Commitment Termination Date in accordance with Section 2.10
hereof, the repayment of the Loans made by such Lender and the termination of
the Commitment of such Lender on the applicable Existing Commitment Termination
Date before giving effect to such extension) and, in the case of any Lender that
may assign any interest in its Commitment or Loans hereunder, shall survive the
making of such assignment, notwithstanding that such assigning Lender may cease
to be a "Lender" hereunder. In addition, each representation and warranty made,
or deemed to be made by a notice of any Loan, herein or pursuant hereto shall
survive the making of such representation and warranty, and no Lender shall be
deemed to have waived, by reason of making any Loan, any Default that may arise
by reason of such representation or warranty proving to have been false or
misleading, notwithstanding that such Lender or the Administrative Agent may
have had notice or knowledge or reason to believe that such representation or
warranty was false or misleading at the time such Loan was made.
11.07 CAPTIONS. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
11.08 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
11.09 GOVERNING LAW; SUBMISSION TO JURISDICTION. This
Agreement and the Notes shall be governed by, and construed in accordance with,
the law of the State of New York. The Company hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of the Supreme Court of the State of New York sitting in New York
County (including its Appellate Division), and of any other appellate court in
the State of New York, for the purposes of all legal proceedings arising out of
or relating to this Agreement or the transactions contemplated hereby. The
Company hereby irrevocably waives, to the fullest extent permitted by applicable
law, any objection that it may now or hereafter have to the laying of the venue
of any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.
<PAGE> 41
- 40 -
11.10 WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
11.11 TREATMENT OF CERTAIN INFORMATION; CONFIDENTIALITY.
(a) The Company acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to
the Company (in connection with this Agreement or otherwise) by any Lender or by
one or more subsidiaries or affiliates of such Lender and the Company hereby
authorizes each Lender to share any information delivered to such Lender by the
Company pursuant to this Agreement, or in connection with the decision of such
Lender to enter into this Agreement, to any such subsidiary or affiliate, it
being understood that any such subsidiary or affiliate receiving such
information shall be bound by the provisions of paragraph (b) below as if it
were a Lender hereunder. Such authorization shall survive the repayment of the
Loans and the termination of the Commitments.
(b) Each Lender and the Administrative Agent agrees (on behalf
of itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking practices, any
non-public information supplied to it by the Company pursuant to this Agreement
that is identified by the Company as being confidential at the time the same is
delivered to the Lenders or the Administrative Agent, PROVIDED that nothing
herein shall limit the disclosure of any such information (i) after such
information shall have become public (other than through a violation of this
Section 11.11), (ii) to the extent required by statute, rule, regulation or
judicial process, (iii) to counsel for any of the Lenders or the Administrative
Agent, (iv) to bank examiners (or any other regulatory authority having
jurisdiction over any Lender or the Administrative Agent), or to auditors or
accountants, (v) to the Administrative Agent or any other Lender (or to Chase
Securities Inc.), (vi) in connection with any litigation to which any one or
more of the Lenders or the Administrative Agent is a party, or in connection
with the enforcement of rights or remedies hereunder or under any other Credit
Document, (vii) to a subsidiary or affiliate of such Lender as provided in
paragraph (a) above or (viii) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant (or prospective
assignee or participant) first executes and delivers to the respective Lender a
Confidentiality Agreement substantially in the form of Exhibit H hereto (or
executes and delivers to such Lender an acknowledgement to the effect that it is
bound by the provisions of this Section 11.11(b), which acknowledgement may be
included as part of the respective assignment or participation agreement
pursuant to which such assignee or participant acquires an interest in the Loans
hereunder); PROVIDED, FURTHER, that in no event shall any Lender or the
Administrative Agent be obligated or required to return any materials furnished
by the Company. The obligations of any assignee that has executed a
Confidentiality Agreement in the form of Exhibit H hereto shall be superseded by
this Section 11.11 upon the date upon which such assignee becomes a Lender
hereunder pursuant to Section 11.05(b) hereof.
11.12 NO RECOURSE. The obligations of the Company and Parent
under the Basic Documents shall be satisfied solely from the Preferred Stock and
the stock required to be pledged to the Administrative Agent and Lenders under
the Parent Pledge Agreement and the proceeds thereof. Moreover, no recourse
shall be had for any obligation owing to any Lender or the Administrative Agent
<PAGE> 42
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under any Basic Document or for the payment of any fee due to any Lender or the
Administrative Agent under any Basic Document or any other obligation or claim
arising out of or based upon any Basic Document against any stockholder,
employee, officer, director, affiliate or incorporator of the Company, the
Parent or Lord Securities Corporation based on their status as such or their
actions in connection therewith, except to the extent resulting from the fraud
or willful misconduct of such stockholder, employee, officer, director,
affiliate or incorporator, as the case may be. The provisions of this section
shall survive the termination of any or all Basic Documents and, with respect to
any Lender or the Administrative Agent, the resignation or replacement thereof.
<PAGE> 43
- 42 -
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
SAF FUNDING CORPORATION
By_________________________
Title:
Address for Notices:
SAF Funding Corporation
2 Wall Street
New York, New York 10005
Attention: Kevin Burns
Telecopier No.: 212-346-9012
Telephone No.: 212-346-9007
<PAGE> 44
- 43 -
LENDERS
-------
COMMITMENT THE CHASE MANHATTAN BANK
----------
$13,000,000
By_________________________
Title:
Lending Office for all Loans:
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Address for Notices:
The Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, New York 10081
Attention: Monique Parker
Telecopier No.: 212-552-5231
Telephone No.: 212-552-7697
<PAGE> 45
- 44 -
COMMITMENT BANK ONE, COLUMBUS, NA
----------
$11,000,000
By_________________________
Title:
Lending Office for all Loans:
Bank One, Columbus, NA
100 East Broad Street-7th Floor
Columbus, OH 43271
Address for Notices:
Bank One, Columbus, NA
<PAGE> 46
- 45 -
100 East Broad Street-7th Floor
Columbus, OH 43271
Attention: Dave Hammond
Telecopier No.: 614-248-5518
Telephone No.: 614-248-5764
<PAGE> 47
- 46 -
Commitment CREDIT LYONNAIS
----------
$11,000,000
By_________________________
Title:
Lending Office for all Loans:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, NY 10019
Address for Notices:
Credit Lyonnais New York Branch
<PAGE> 48
- 47 -
1301 Avenue of the Americas
New York, NY 10019
Attention: Peter Rassmusen, VP
Telecopier No.: 212-261-3401
Telephone No.: 212-261-7718
<PAGE> 49
- 48 -
Commitment DRESDNER BANK AG NEW YORK BRANCH
----------
$11,000,000
AND GRAND CAYMAN BRANCH
By_________________________
Title:
By_________________________
Title:
Lending Office for all Loans:
Dresdner Bank AG
New York Branch
75 Wall Street
<PAGE> 50
-49-
New York, NY 10005-2889
Address for Notices:
Dresdner Bank AG
New York Branch
75 Wall Street
New York, NY 10005-2889
Attention: Lora Lam
Telecopier No.: 212-429-2130
Telephone No.: 212-429-2188
<PAGE> 51
- 50 -
Commitment FLEET BANK
----------
$11,000,000
By_________________________
Title:
Lending Office for all Loans:
Fleet Bank
777 Main Street
Hartford, CT 06115
Address for Notices:
Fleet Bank
<PAGE> 52
- 51 -
777 Main Street
Hartford, CT 06115
Attention: Bruce Gregory
Telecopier No.: 860-986-1264
Telephone No.: 860-986-2809
<PAGE> 53
- 52 -
Commitment KEYBANK NATIONAL ASSOCIATION
----------
$11,000,000
By_________________________
Title:
Lending Office for all Loans:
KeyBank National Association
127 Public Square
Cleveland, OH 44114-1306
Address for Notices:
KeyBank National Association
<PAGE> 54
- 53 -
127 Public Square
Cleveland, OH 44114-1306
Attention:
Kathy Koenig,
Large Corporate Dept., OH-01-27-0606
Telecopier No.: 216-689-4981
Telephone No.: 216-689-4228
<PAGE> 55
- 54 -
Commitment MELLON BANK, N.A.
----------
$11,000,000
By_________________________
Title:
Lending Office for all Loans:
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
Address for Notices:
Mellon Bank, N.A.
<PAGE> 56
- 55 -
One Mellon Center - Room 370
Pittsburgh, PA 15258
Attention: Susan M. Whitewood
Telecopier No.: 412-234-8087
Telephone No.: 412-234-7112
<PAGE> 57
- 56 -
Commitment UNION BANK OF CALIFORNIA, N.A.
----------
$11,000,000
By_________________________
Title:
Lending Office for all Loans:
Union Bank of California, N.A.
550 S. Hope Street
Los Angeles, CA 90071
Address for Notices:
Union Bank of California, N.A.
<PAGE> 58
- 57 -
550 S. Hope Street
Los Angeles, CA 90071
Attention: James R. Fothergill
Telecopier No.: 213-243-3552
Telephone No.: 213-243-3542
<PAGE> 59
- 58 -
Commitment NATIONAL CITY BANK OF COLUMBUS
----------
$10,000,000
By_________________________
Title:
Lending Office for all Loans:
National City Bank of Columbus
155 East Broad Street
Columbus, OH 43251-0061
Address for Notices:
National City Bank of Columbus
<PAGE> 60
- 59 -
155 East Broad Street
Columbus, OH 43251-0061
Attention: Joseph M. Jester
Telecopier No.: 614-463-8025
Telephone No.: 614-463-8658
<PAGE> 61
- 60 -
THE CHASE MANHATTAN BANK
as Administrative Agent
By_________________________
Title:
Address for Notices to
Chase as Administrative Agent:
The Chase Manhattan Bank
c/o Agent Bank Services Group
140 East 45th Street, 29th Floor
New York, New York 10017
Telecopier No.: (212) 622-0122
Telephone No.: (212) 622-0004
<PAGE> 62
-61-
EXHIBIT A to the
Credit Agreement
[Form of Note]
PROMISSORY NOTE
$_______________ __________ __, 199_
New York, New York
FOR VALUE RECEIVED, SAF FUNDING CORPORATION, a Delaware
corporation (the "COMPANY"), hereby promises to pay to __________________ (the
"LENDER"), for account of its respective Applicable Lending Offices provided for
by the Credit Agreement referred to below, at the principal office of The Chase
Manhattan Bank in New York, New York, the principal sum of _______________
Dollars (or such lesser amount as shall equal the aggregate unpaid principal
amount of the Loans made by the Lender to the Company under the Credit
Agreement), in lawful money of the United States of America and in immediately
available funds, on the dates and in the principal amounts provided in the
Credit Agreement, and to pay interest on the unpaid principal amount of each
such Loan, at such office, in like money and funds, for the period commencing on
the date of such Loan until such Loan shall be paid in full, at the rates per
annum and on the dates provided in the Credit Agreement.
The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Loan made by the Lender to the Company, and each
payment made on account of the principal thereof, shall be recorded by the
Lender on its books and, prior to any transfer of this Note, endorsed by the
Lender on the schedule attached hereto or any continuation thereof, PROVIDED
that the failure of the Lender to make any such recordation (or any error by
such Lender in making any such recordation) or endorsement shall not affect the
obligations of the Company to make a payment when due of any amount owing under
the Credit Agreement or hereunder in respect of the Loans made by the Lender.
This Note is one of the Notes referred to in the Credit
Agreement dated as of August 16, 1996 (as modified and supplemented and in
effect from time to time, the "CREDIT AGREEMENT") between the Company, the
lenders party thereto (including the Lender) and The Chase Manhattan Bank, as
Administrative Agent, and evidences Loans made by the Lender thereunder. Terms
used but not defined in this Note have the respective meanings assigned to them
in the Credit Agreement.
The Credit Agreement provides for the acceleration of the
maturity of this Note upon the occurrence of certain events and for prepayments
of Loans upon the terms and conditions specified therein.
Except as permitted by Section 11.05 of the Credit Agreement,
this Note may not be assigned by the Lender to any other Person.
This Note shall be governed by, and construed in accordance
with, the law of the State of New York.
SAF FUNDING CORPORATION
<PAGE> 63
- 62 -
By_________________________
Title:
<PAGE> 64
- 63 -
SCHEDULE OF LOANS
This Note evidences Loans made, Continued or Converted under
the within-described Credit Agreement to the Company, on the dates, in the
principal amounts, of the Types, bearing interest at the rates and having
Interest Periods (if applicable) of the durations set forth below, subject to
the payments, Continuations, Conversions and prepayments of principal set forth
below:
<TABLE>
<CAPTION>
Amount
Date Prin- Paid,
Made, cipal Duration Prepaid, Unpaid
Continued Amount Type of Continued Prin-
or of of Interest Interest or cipal Notation
Converted Loan Loan Rate Period Converted Amount Made By
- --------- ------ ---- -------- -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 65
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EXHIBIT B to the
Credit Agreement
[Form of Borrowing Notice]
[Date]
The Chase Manhattan Bank
Agent Bank Services
140 East 45th Street, 29th Floor
New York, New York 10017
Re: Credit Agreement dated as of August 16, 1996,
between SAF Funding Corporation, the lenders party thereto and
The Chase Manhattan Bank, as Administrative Agent.
Ladies and Gentlemen:
Reference is made to the Credit Agreement dated as of August
16, 1996 (as modified and supplemented and in effect from time to time, the
"CREDIT AGREEMENT"), between SAF Funding Corporation (the "COMPANY"), the
lenders party thereto and The Chase Manhattan Bank, as Administrative Agent.
Capitalized terms used but not defined herein shall have the respective meanings
assigned to such terms in the Credit Agreement.
Pursuant to Section 2.02 of the Credit Agreement, the Company
hereby notifies you that it will make a borrowing of Loans on ______________,
199_(1) in the principal amount of $_____________.(2)
SAF FUNDING CORPORATION
By_________________________
Title:
- --------
1 Insert a date falling on or after the third Business Day following the date
of this Notice of Borrowing.
2 Insert an amount at least equal to $10,000,000 or a larger integral
multiple of $1,000,000.
<PAGE> 66
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EXHIBIT C-1
to the Credit Agreement
[Form of Company Pledge Agreement]
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT dated as of August 16, 1996
between SAF FUNDING CORPORATION, a corporation duly organized and validly
existing under the laws of the State of Delaware (the "COMPANY"); and THE CHASE
MANHATTAN BANK, as administrative agent for the lenders or other financial
institutions or entities party, as lenders, to the Credit Agreement referred to
below (in such capacity, together with its successors in such capacity, the
"ADMINISTRATIVE AGENT").
The Company, certain lenders and the Administrative Agent are
parties to a Credit Agreement dated as of August 16, 1996 (as modified and
supplemented and in effect from time to time, the "CREDIT AGREEMENT"),
providing, subject to the terms and conditions thereof, for loans to be made by
said lenders to the Company.
To induce said lenders to enter into the Credit Agreement and
to extend credit thereunder, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company has agreed
to pledge and grant a security interest in the Collateral (as hereinafter
defined) as security for the Secured Obligations (as so defined). Accordingly,
the parties hereto agree as follows:
Section 1. DEFINITIONS. Terms defined in the Credit Agreement
are used herein as defined therein. In addition, as used herein:
"COLLATERAL" shall have the meaning ascribed thereto in
Section 3 hereof.
"COLLATERAL ACCOUNT" shall have the meaning ascribed thereto
in Section 4.01 hereof.
"PLEDGED STOCK" shall have the meaning ascribed thereto in
Section 3(a) hereof.
"SECURED OBLIGATIONS" shall mean, collectively, (a) the
principal of and interest on the Loans made by the Lenders to, and the
Note(s) held by each Lender of, the Company and all other amounts from
time to time owing to the Lenders or the Administrative Agent by the
Company under the Basic Documents and (b) all obligations of the
Company to the Lenders and the Administrative Agent hereunder.
"UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial
Code as in effect from time to time in the State of New York.
Section 2. REPRESENTATIONS AND WARRANTIES. The Company
represents and warrants to the Lenders and the Administrative Agent that the
Company is the sole beneficial owner of the Collateral and no Lien exists or
will exist upon the Collateral at any time (and, except as set forth in the Put
Agreement with respect to the Pledged Stock, no right or option to acquire the
same exists in favor of any other Person), except for the pledge and security
interest in favor of the Administrative Agent for the
<PAGE> 67
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benefit of the Lenders created or provided for herein, which pledge and security
interest will constitute a first priority perfected pledge and security interest
in and to all of the Collateral.
Section 3. THE PLEDGE. As collateral security for the prompt
payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the Secured Obligations, the Company hereby pledges and grants to
the Administrative Agent, for the benefit of the Lenders as hereinafter
provided, a security interest in all of the Company's right, title and interest
in, to and under the following Property, whether now owned by the Company or
hereafter acquired and whether now existing or hereafter coming into existence
(all being collectively referred to herein as "COLLATERAL"):
(a) all shares of Preferred Stock now or hereafter owned by
the Company, in each case together with the certificates evidencing the
same (collectively, the "PLEDGED STOCK");
(b) all shares, securities, moneys or property representing a
dividend on any of the Pledged Stock, or representing a distribution or
return of capital upon or in respect of the Pledged Stock, or resulting
from a split-up, revision, reclassification or other like change of the
Pledged Stock or otherwise received in exchange therefor, and any
subscription warrants, rights or options issued to the holders of, or
otherwise in respect of, the Pledged Stock;
(c) without affecting the obligations of State Auto Financial
under any provision prohibiting such action hereunder or under any of
the other Basic Documents to which it is a party, in the event of any
consolidation or merger in which State Auto Financial is not the
surviving corporation, all shares of each class of the capital stock of
the successor corporation (unless such successor corporation is the
Company itself) formed by or resulting from such consolidation or
merger issued in exchange for the Pledged Stock;
(d) the Standby Purchase Agreement;
(e) the balance from time to time in the Collateral Account;
and
(f) all other tangible and intangible Property of the Company,
including, without limitation, all proceeds, products, accessions,
rents, profits, income, benefits, substitutions and replacements of and
to any of the Property of the Company described in the preceding
clauses of this Section 3 (including, without limitation, all causes of
action, claims and warranties now or hereafter held by the Company in
respect of any of the items listed above and any proceeds of insurance
thereon) and, to the extent related to any Property described in said
clauses or such proceeds, products and accessions, all books,
correspondence, credit files, records, invoices and other papers.
Section 4. CASH PROCEEDS OF COLLATERAL.
4.01 COLLATERAL ACCOUNT. The Administrative Agent may
establish with Chase a cash collateral account (the "COLLATERAL ACCOUNT") in the
name and under the control of the Administrative Agent into which there shall be
deposited from time to time the cash proceeds of any of the Collateral required
to be delivered to the Administrative Agent pursuant hereto and into which the
Company may from time to time deposit any additional amounts that it wishes to
pledge to the Administrative Agent for the benefit of the Lenders as additional
collateral security hereunder (it being understood and agreed that ordinary
dividends payable on the Pledged Stock shall not constitute cash proceeds). The
balance from time to time in the Collateral Account shall constitute part of the
Collateral hereunder and shall not constitute payment of the Secured Obligations
until applied as hereinafter provided. Except as expressly
<PAGE> 68
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provided in the next sentence, the Administrative Agent shall remit the
collected balance standing to the credit of the Collateral Account to or upon
the order of the Company as the Company shall from time to time instruct.
However, at any time following the occurrence and during the continuance of an
Event of Default, the Administrative Agent may (and, if instructed by the
Lenders as specified in Section 10.03 of the Credit Agreement, shall) in its (or
their) discretion apply or cause to be applied (subject to collection) the
balance from time to time outstanding to the credit of the Collateral Account to
the payment of the Secured Obligations in the manner specified in Section 5.09
hereof. The balance from time to time in the Collateral Account shall be under
the sole dominion and control of the Administrative Agent and subject to
withdrawal only as provided herein. In addition to the foregoing, the Company
agrees that if the proceeds of any Collateral hereunder shall be received by it,
the Company shall as promptly as possible deposit such proceeds into the
Collateral Account to the extent such proceeds are required to be delivered to
the Administrative Agent pursuant hereto. Until so deposited, all such proceeds
shall be held in trust by the Company for and as the property of the
Administrative Agent and shall not be commingled with any other funds or
property of the Company.
4.02 INVESTMENT OF BALANCE IN COLLATERAL ACCOUNT. Amounts on
deposit in the Collateral Account shall be invested from time to time in such
Permitted Investments as the Company (or, after the occurrence and during the
continuance of a Default, the Administrative Agent) shall determine, which
Permitted Investments shall be held in the name and be under the control of the
Administrative Agent, PROVIDED that at any time after the occurrence and during
the continuance of an Event of Default, the Administrative Agent may (and, if
instructed by the Lenders as specified in Section 10.03 of the Credit Agreement,
shall) in its (or their) discretion at any time and from time to time elect to
liquidate any such Permitted Investments and to apply or cause to be applied the
proceeds thereof to the payment of the Secured Obligations in the manner
specified in Section 5.09 hereof.
Section 5. FURTHER ASSURANCES; REMEDIES. In furtherance of the
grant of the pledge and security interest pursuant to Section 3 hereof, the
Company hereby agrees with each Lender and the Administrative Agent as follows:
5.01 DELIVERY AND OTHER PERFECTION. The Company shall:
(a) if any of the shares, securities, moneys or property
required to be pledged by the Company under clauses (a), (b) and (c) of
Section 3 hereof are received by the Company, forthwith either (x)
transfer and deliver to the Administrative Agent such shares or
securities so received by the Company (together with the certificates
for any such shares and securities duly endorsed in blank or
accompanied by undated stock powers duly executed in blank), all of
which thereafter shall be held by the Administrative Agent, pursuant to
the terms of this Agreement, as part of the Collateral or (y) take such
other action as the Administrative Agent shall deem necessary or
appropriate to duly record the Lien created hereunder in such shares,
securities, moneys or property in said clauses (a), (b) and (c);
(b) give, execute, deliver, file and/or record any financing
statement, notice, instrument, document, agreement or other papers that
may be necessary or desirable (in the judgment of the Administrative
Agent) to create, preserve, perfect or validate the security interest
granted pursuant hereto or to enable the Administrative Agent to
exercise and enforce its rights hereunder with respect to such pledge
and security interest, including, without limitation, causing any or
all of the Collateral to be transferred of record into the name of the
Administrative Agent or its nominee (and the Administrative Agent
agrees that if any Collateral is transferred into its name or the name
of its nominee, the Administrative Agent will thereafter promptly give
to the Company copies of any notices and communications received by it
with respect to the Collateral);
<PAGE> 69
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(c) keep full and accurate books and records relating to the
Collateral, and stamp or otherwise mark such books and records in such
manner as the Administrative Agent may reasonably require in order to
reflect the security interests granted by this Agreement; and
(d) permit representatives of the Administrative Agent, upon
reasonable notice, at any time during normal business hours to inspect
and make abstracts from its books and records pertaining to the
Collateral, and permit representatives of the Administrative Agent to
be present at the Company's place of business to receive copies of all
communications and remittances relating to the Collateral, and forward
copies of any notices or communications received by the Company with
respect to the Collateral, all in such manner as the Administrative
Agent may require.
5.02 OTHER FINANCING STATEMENTS AND LIENS. Without the prior
written consent of the Administrative Agent (granted with the authorization of
the Lenders as specified in Section 10.09 of the Credit Agreement), the Company
shall not file or suffer to be on file, or authorize or permit to be filed or to
be on file, in any jurisdiction, any financing statement or like instrument with
respect to the Collateral in which the Administrative Agent is not named as the
sole secured party for the benefit of the Lenders.
5.03 PRESERVATION OF RIGHTS. The Administrative Agent shall
not be required to take steps necessary to preserve any rights against prior
parties to any of the Collateral.
5.04 COLLATERAL.
(1) So long as no Event of Default shall have occurred and be
continuing, the Company shall have the right to exercise all consensual and
other powers of ownership pertaining to the Pledged Stock for all purposes not
inconsistent with the terms of this Agreement, the Credit Agreement, the Notes,
the Put Agreement, the Standby Purchase Agreement or any other instrument or
agreement referred to herein or therein, PROVIDED that the Administrative Agent
shall execute and deliver to the Company or cause to be executed and delivered
to the Company all such proxies, powers of attorney, dividend and other orders,
and all such instruments, without recourse, as the Company may reasonably
request for the purpose of enabling the Company to exercise the rights and
powers that it is entitled to exercise pursuant to this Section 5.04(1).
(2) If any Event of Default shall have occurred, then so long
as such Event of Default shall continue, and whether or not the Administrative
Agent or any Lender exercises any available right to declare any Secured
Obligation due and payable or seeks or pursues any other relief or remedy
available to it under applicable law or under this Agreement, the Credit
Agreement, the Notes, the Put Agreement, the Standby Purchase Agreement or any
other agreement relating to such Secured Obligation, all dividends and other
distributions on the Collateral shall be paid directly to the Administrative
Agent and retained by it in the Collateral Account as part of the Collateral,
subject to the terms of this Agreement, and, if the Administrative Agent shall
so request in writing, the Company agrees to execute and deliver to the
Administrative Agent appropriate additional dividend, distribution and other
orders and documents to that end, PROVIDED that if such Event of Default is
cured, any such dividend or distribution theretofore paid to the Administrative
Agent shall, upon request of the Company (except to the extent theretofore
applied to the Secured Obligations), be returned by the Administrative Agent to
the Company.
5.05 EVENTS OF DEFAULT, ETC. During the period during which an
Event of Default shall have occurred and be continuing, but subject to the
provisions of Section 6.11 hereof:
<PAGE> 70
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(a) the Administrative Agent may make any reasonable
compromise or settlement deemed desirable with respect to any of the
Collateral and may modify the terms of any of the Collateral;
(b) the Administrative Agent shall have all of the rights and
remedies with respect to the Collateral of a secured party under the
Uniform Commercial Code (whether or not said Code is in effect in the
jurisdiction where the rights and remedies are asserted) and such
additional rights and remedies to which a secured party is entitled
under the laws in effect in any jurisdiction where any rights and
remedies hereunder may be asserted, including, without limitation, the
right, to the maximum extent permitted by law, to exercise all
consensual and other powers of ownership pertaining to the Collateral
as if the Administrative Agent were the sole and absolute owner thereof
(and the Company agrees to take all such action as may be appropriate
to give effect to such right);
(c) the Administrative Agent in its discretion may, in its
name or in the name of the Company or otherwise, demand, sue for,
collect or receive any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral, but
shall be under no obligation to do so; and
(d) the Administrative Agent may, upon ten business days'
prior written notice to the Company of the time and place, with respect
to the Collateral or any part thereof that shall then be or shall
thereafter come into the possession, custody or control of the
Administrative Agent, the Lenders or any of their respective agents,
sell, lease, assign or otherwise dispose of all or any part of such
Collateral, at such place or places as the Administrative Agent deems
best, and for cash or for credit or for future delivery (without
thereby assuming any credit risk), at public or private sale, without
demand of performance or notice of intention to effect any such
disposition or of the time or place thereof (except such notice as is
required above or by applicable statute and cannot be waived), and the
Administrative Agent or any Lender or anyone else may be the purchaser,
lessee, assignee or recipient of any or all of the Collateral
so disposed of at any public sale (or, to the extent permitted by law,
at any private sale) and thereafter hold the same absolutely, free from
any claim or right of whatsoever kind, including any right or equity of
redemption (statutory or otherwise), of the Company, any such demand,
notice and right or equity being hereby expressly waived and released.
The Administrative Agent may, without notice or publication, adjourn
any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the sale, and
such sale may be made at any time or place to which the sale may be so
adjourned; and
(e) Without limiting the rights and remedies of the
Administrative Agent under the foregoing clauses (a), (b), (c) and (d)
of this Section 5.05, the Administrative Agent may exercise all of its
rights and remedies under the Put Agreement.
The proceeds of each collection, sale or other disposition under this Section
5.05 shall be applied in accordance with Section 5.09 hereof.
The Company recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, and applicable state
securities laws, the Administrative Agent may be compelled, with respect to any
sale of all or any part of the Collateral, to limit purchasers to those who will
agree, among other things, to acquire the Collateral for their own account, for
investment and not with a view to the distribution or resale thereof. The
Company acknowledges that any such private sales
<PAGE> 71
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may be at prices and on terms less favorable to the Administrative Agent than
those obtainable through a public sale without such restrictions, and,
notwithstanding such circumstances, agrees that any such private sale shall not
be deemed, for that reason alone, not to have been made in a commercially
reasonable manner and that the Administrative Agent shall have no obligation to
engage in public sales and no obligation to delay the sale of any Collateral for
the period of time necessary to permit State Auto Financial or issuer thereof to
register it for public sale.
5.06 NO LIABILITY FOR DEFICIENCY. If the proceeds of sale,
collection or other realization of or upon the Collateral pursuant to Section
5.05 hereof are insufficient to cover the costs and expenses of such realization
and the payment in full of the Secured Obligations, the Company shall not be
liable for any deficiency.
5.07 REMOVALS, ETC. Without at least 30 days' prior written
notice to the Administrative Agent, the Company shall not (i) maintain any of
its books and records with respect to the Collateral at any office or maintain
its principal place of business at any place other than at the address indicated
beneath the signature of the Company to the Credit Agreement or (ii) change its
name, or the name under which it does business, from the name shown on the
signature pages hereto.
5.08 PRIVATE SALE. The Administrative Agent and the Lenders
shall incur no liability as a result of the sale of the Collateral, or any part
thereof, at any private sale pursuant to Section 5.05 hereof conducted in a
commercially reasonable manner. The Company hereby waives any claims against the
Administrative Agent or any Lender arising by reason of the fact that the price
at which the Collateral may have been sold at such a private sale was less than
the price that might have been obtained at a public sale or was less than the
aggregate amount of the Secured Obligations, even if the Administrative Agent
accepts the first offer received and does not offer the Collateral to more than
one offeree.
5.09 APPLICATION OF PROCEEDS. Except as otherwise herein
expressly provided, the proceeds of any collection, sale or other realization of
all or any part of the Collateral pursuant hereto, and any other cash at the
time held by the Administrative Agent under Section 4 hereof or this Section 5,
shall be applied by the Administrative Agent:
FIRST, to the payment of the costs and expenses of such
collection, sale or other realization, including reasonable
out-of-pocket costs and expenses of the Administrative Agent and the
fees and expenses of its agents and counsel, and all expenses incurred
and advances made by the Administrative Agent in connection therewith;
NEXT, to the payment in full of the Secured Obligations, in
each case equally and ratably in accordance with the respective amounts
thereof then due and owing or as the Lenders holding the same may
otherwise agree; and
FINALLY, to the payment to the Company, or its successors or
assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining.
As used in this Section 5, "PROCEEDS" of Collateral shall mean
cash, securities and other property realized in respect of, and distributions in
kind of, Collateral, including any thereof received under any reorganization,
liquidation or adjustment of debt of the Company or any issuer of or obligor on
any of the Collateral.
5.10 ATTORNEY-IN-FACT. Without limiting any rights or powers
granted by this Agreement to the Administrative Agent while no Event of Default
has occurred and is continuing, upon the occurrence and during the continuance
of any Event of Default the Administrative Agent is hereby
<PAGE> 72
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appointed the attorney-in-fact of the Company for the purpose of carrying out
the provisions of this Section 5 and taking any action and executing any
instruments that the Administrative Agent may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-fact is
irrevocable and coupled with an interest. Without limiting the generality of the
foregoing, so long as the Administrative Agent shall be entitled under this
Section 5 to make collections in respect of the Collateral, the Administrative
Agent shall have the right and power to receive, endorse and collect all checks
made payable to the order of the Company representing any dividend, payment or
other distribution in respect of the Collateral or any part thereof and to give
full discharge for the same.
5.11 PERFECTION. Prior to or concurrently with the execution
and delivery of this Agreement, the Company shall file such financing statements
and other documents in such offices as the Administrative Agent may request to
perfect the security interests granted by Section 3 of this Agreement.
5.12 TERMINATION. When all Secured Obligations shall have been
paid in full and the Commitments of the Lenders under the Credit Agreement shall
have expired or been terminated, this Agreement shall terminate, and the
Administrative Agent shall forthwith cause to be assigned, transferred and
delivered, against receipt but without any recourse, warranty or representation
whatsoever, any remaining Collateral and money received in respect thereof, to
or on the order of the Company. The Administrative Agent shall also execute and
deliver to the Company upon such termination such Uniform Commercial Code
termination statements and such other documentation as shall be reasonably
requested by the Company to effect the termination and release of the Liens on
the Collateral.
5.13 FURTHER ASSURANCES. The Company agrees that, from time to
time upon the written request of the Administrative Agent, the Company will
execute and deliver such further documents and do such other acts and things as
the Administrative Agent may reasonably request in order fully to effect the
purposes of this Agreement.
5.14 RELEASES. The parties hereto agree that upon the
redemption by State Auto Financial of any Pledged Stock in accordance with its
terms and the prepayment of Loans in respect thereof in accordance with Section
2.09 of the Credit Agreement, the Lien created hereunder on the Pledged Stock so
redeemed shall be automatically released.
Section 6. MISCELLANEOUS.
6.01 NO WAIVER. No failure on the part of the Administrative
Agent or any Lender to exercise, and no course of dealing with respect to, and
no delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by the Administrative
Agent or any Lender of any right, power or remedy hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
The remedies herein are cumulative and are not exclusive of any remedies
provided by law.
6.02 NOTICES. All notices, requests, consents and demands
hereunder shall be in writing and telecopied or delivered to the intended
recipient at its "Address for Notices" specified pursuant to Section 11.02 of
the Credit Agreement and shall be deemed to have been given at the times
specified in said Section 11.02.
6.03 AMENDMENTS, ETC. The terms of this Agreement may be
waived, altered or amended only by an instrument in writing duly executed by the
Company and the Administrative Agent
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(with the consent of the Lenders as specified in Section 10.09 of the Credit
Agreement). Any such amendment or waiver shall be binding upon the
Administrative Agent and each Lender, each holder of any of the Secured
Obligations and the Company.
6.04 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of the
Company, the Administrative Agent, the Lenders and each holder of any of the
Secured Obligations (PROVIDED, however, that the Company shall not assign or
transfer its rights hereunder without the prior written consent of the
Administrative Agent).
6.05 CAPTIONS. The captions and section headings appearing
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
6.06 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and either of the parties hereto may execute this Agreement by
signing any such counterpart.
6.07 GOVERNING LAW, ETC. This Agreement shall be governed by,
and construed in accordance with, the law of the State of New York. The Company
hereby submits to the nonexclusive jurisdiction of the United States District
Court for the Southern District of New York and of the Supreme Court of the
State of New York sitting in New York County (including its Appellate Division),
and of any other appellate court in the State of New York, for the purposes of
all legal proceedings arising out of or relating to this Pledge Agreement or the
transactions contemplated hereby. The Company hereby irrevocably waives, to the
fullest extent permitted by applicable law, any objection that it may now or
hereafter have to the laying of the venue of any such proceeding brought in such
a court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum. EACH OF THE COMPANY, THE ADMINISTRATIVE AGENT
AND THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
6.08 AGENTS AND ATTORNEYS-IN-FACT. The Administrative Agent
may employ agents and attorneys-in-fact in connection herewith and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith.
6.09 SEVERABILITY. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Administrative
Agent and the Lenders in order to carry out the intentions of the parties hereto
as nearly as may be possible and (ii) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
6.10 THE ADMINISTRATIVE AGENT. As provided in Section 10 of
the Credit Agreement, each Lender has appointed The Chase Manhattan Bank as its
agent for purposes of this Agreement. Following the payment in full of all
Secured Obligations outstanding under the Credit Agreement and the termination
or expiration of the Commitments thereunder, the provisions of said Section 10
shall be deemed to continue in full force and effect for the benefit of the
Administrative Agent under this Agreement. In that connection, following such
payment in full and expiration and termination of the Commitments, the term
"Majority Lenders" (as defined in said Section 1.01) shall be deemed to refer to
Lenders holding Secured Obligations representing at least 66-2/3% of the
aggregate Secured Obligations.
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6.11 CERTAIN REGULATORY REQUIREMENTS. The Administrative Agent
hereby acknowledges that, in connection with any exercise by it of the rights
and remedies afforded to it hereunder, it may be necessary to provide notice to
and/or obtain the prior consent or approval of certain governmental authorities.
Notwithstanding anything to the contrary contained herein, the Administrative
Agent will not take any action pursuant to this Agreement which would constitute
or result in any transfer of control over State Auto Financial, or any other
action, if such action, in either case, requires notice to and/or the prior
consent or approval of governmental authorities without first providing such
notice and/or obtaining such consent or approval. Upon the exercise by the
Administrative Agent of any power, right or privilege or remedy pursuant to this
Agreement which requires any consent, approval, recording, qualification or
authorization of any governmental authority, the Company will, and will cause
State Auto Financial to, (a) execute and deliver, or cause the execution and
delivery of, all applications, instruments or other documents and papers that
the Administrative Agent may reasonably require to be obtained for such
governmental consent, approval, recording, qualification or authorization, (b)
use its best efforts otherwise to secure such governmental consent, approval,
recording, qualification or authorization and (c) take no action inconsistent
therewith. The Company acknowledges that the Administrative Agent has no
adequate remedy at law for the breach of any obligation of this Section 6.11,
and that such obligations shall be enforceable by specific performance.
<PAGE> 75
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IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed and delivered as of the day and year first above
written.
SAF FUNDING CORPORATION
By _________________________
Title:
THE CHASE MANHATTAN BANK,
as Administrative Agent
By _________________________
Title:
<PAGE> 76
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EXHIBIT C-2 to the
Credit Agreement
[Form of Parent Pledge Agreement]
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of August 16, 1996 between BROAD
STREET CONTRACT SERVICES, INC., a corporation duly organized and validly
existing under the laws of the State of Delaware (the "PARENT"); and THE CHASE
MANHATTAN BANK, as administrative agent for the Lenders party to the Credit
Agreement referred to below (in such capacity, together with its successors in
such capacity, the "ADMINISTRATIVE AGENT").
SAF Funding Corporation, a Delaware corporation (the
"COMPANY"), certain lenders (the "LENDERS") and the Administrative Agent are
parties to a Credit Agreement dated as of August 16, 1996 (as modified and
supplemented and in effect from time to time, the "CREDIT AGREEMENT"),
providing, subject to the terms and conditions thereof, for loans to be made by
said Lenders to the Company. The Parent owns all of the issued and outstanding
capital stock of the Company.
To induce said Lenders to enter into the Credit Agreement and
to extend credit thereunder, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parent has agreed
to pledge and grant a security interest in the Collateral (as hereinafter
defined) as security for the Secured Obligations (as hereinafter defined).
Accordingly, the parties hereto agree as follows:
Section 1. DEFINITIONS. Terms defined in the Credit Agreement
are used herein as defined therein. In addition, as used herein:
"COLLATERAL" shall have the meaning ascribed thereto in
Section 3.01 hereof.
"PLEDGED STOCK" shall have the meaning ascribed thereto in
Section 3.01(a) hereof.
"SECURED OBLIGATIONS" shall mean, collectively, (a) the
principal of and interest on the Loans made by the Lenders to, and the
Notes held by the Lenders of, the Company and all other amounts from
time to time owing to the Lenders or the Administrative Agent by the
Company under the Credit Documents and (b) all obligations of the
Parent to the Lenders and the Administrative Agent hereunder.
"UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial
Code as in effect from time to time in the State of New York.
Section 2. REPRESENTATIONS AND WARRANTIES. The Parent
represents and warrants to the Lenders and the Administrative Agent that:
2.01 CORPORATE EXISTENCE. The Parent is a corporation duly
organized and validly existing under the laws of the jurisdiction of its
incorporation.
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2.02 LITIGATION. There are no legal or arbitral proceedings or
any proceedings by or before any governmental or regulatory authority or agency,
now pending or (to the knowledge of the Parent) threatened against the Parent
that, if adversely determined, could (either individually or in the aggregate)
have a material adverse effect on the making or performance by the Parent of
this Agreement or the validity or enforceability thereof.
2.03 NO BREACH. None of the execution and delivery of this
Agreement, the consummation of the transactions herein contemplated or
compliance with the terms and provisions hereof will conflict with or result in
a breach of, or require any consent under, the charter or by-laws of the Parent,
or any applicable law or regulation, or any order, writ, injunction or decree of
any court or governmental authority or agency, or any agreement or instrument to
which the Parent is a party or by which is bound or to which it is subject, or
constitute a default under any such agreement or instrument, or (except for the
Liens created pursuant to this Agreement) result in the creation or imposition
of any Lien upon any Property of the Parent pursuant to the terms of any such
agreement or instrument.
2.04 CORPORATE ACTION. The Parent has all necessary corporate
power, authority and legal right to execute, deliver and perform its obligations
under this Agreement; the execution, delivery and performance by the Parent of
this Agreement have been duly authorized by all necessary corporate action on
its part (including, without limitation, any required shareholder approvals);
and this Agreement has been duly and validly executed and delivered by the
Parent and constitutes its legal, valid and binding obligation, enforceable in
accordance with its terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
applicability affecting the enforcement of creditors' rights and (b) the
application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
2.05 APPROVALS. No authorizations, approvals or consents of,
and no filings or registrations with, any governmental or regulatory authority
or agency, or any securities exchange are necessary for the execution, delivery
or performance by the Parent of this Agreement or for the validity or
enforceability hereof except for filings and recordings in respect of the Liens
created pursuant to this Agreement.
2.06 TAXES. As of the Closing Date, the charges, accruals and
reserves on the books of the Parent and its Subsidiaries in respect of taxes and
other governmental charges are, in the opinion of the Parent, adequate.
2.07 PLEDGED STOCK.
(a) The Parent is the sole beneficial owner of the Collateral
and no Lien exists or will exist upon the Collateral at any time (and no right
or option to acquire the same exists in favor of any other Person), except for
the pledge and security interest in favor of the Administrative Agent for the
benefit of the Lenders created or provided for herein, which pledge and security
interest will constitute a first priority perfected pledge and security interest
in and to all of the Collateral.
(b) The Pledged Stock represented by the certificates
identified in Annex 1 hereto is, and all other Pledged Stock in which the Parent
shall hereafter grant a security interest pursuant to Section 3.01 hereof will
be, duly authorized, validly existing, fully paid and non-assessable and none of
such Pledged Stock is or will be subject to any contractual restriction, or any
restriction under the charter or by-laws of the Company, upon the transfer of
such Pledged Stock (except for any such restriction contained herein).
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(c) The Pledged Stock represented by the certificates
identified in Annex 1 hereto constitutes all of the issued and outstanding
shares of capital stock of any class of the Company beneficially owned by the
Parent on the date hereof (whether or not registered in the name of the Parent)
and said Annex 1 correctly identifies, as at the date hereof, the respective
class and par value of the shares comprising such Pledged Stock and the
respective number of shares (and registered owners thereof) represented by each
such certificate.
2.08 INVESTMENT COMPANY ACT. The Parent is not an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
2.09 PUBLIC UTILITY HOLDING COMPANY ACT. The Parent is not a
"holding company", or an "affiliate" of a "holding company" or a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
Section 3. THE PLEDGE.
3.01 PLEDGE. As collateral security for the prompt payment in
full when due (whether at stated maturity, by acceleration or otherwise) of the
Secured Obligations, the Parent hereby pledges and grants to the Administrative
Agent, for the benefit of the Lenders as hereinafter provided, a security
interest in all of the Parent's right, title and interest in, to and under the
following Property, whether now owned by the Parent or hereafter acquired and
whether now existing or hereafter coming into existence (all being collectively
referred to herein as "COLLATERAL"):
(a) the shares of common stock of the Company represented by
the certificates identified in Annex 1 hereto and all other shares of
capital stock of whatever class of the Company, now or hereafter owned
by the Parent, in each case together with the certificates evidencing
the same (collectively, the "PLEDGED STOCK");
(b) all shares, securities, moneys or property representing a
dividend on any of the Pledged Stock, or representing a distribution or
return of capital upon or in respect of the Pledged Stock, or resulting
from a split-up, revision, reclassification or other like change of the
Pledged Stock or otherwise received in exchange therefor, and any
subscription warrants, rights or options issued to the holders of, or
otherwise in respect of, the Pledged Stock;
(c) without affecting the obligations of the Parent under any
provision prohibiting such action hereunder or under the Credit
Agreement, in the event of any consolidation or merger in which the
Company is not the surviving corporation, all shares of each class of
the capital stock of the successor corporation (unless such successor
corporation is the Parent itself) formed by or resulting from such
consolidation or merger; and
(d) all proceeds of and to any of the Property of the Parent
described in the preceding clauses of this Section 3.01 (including,
without limitation, all causes of action, claims and warranties now or
hereafter held by the Parent in respect of any of the items listed
above) and, to
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the extent related to any property described in said clauses or such
proceeds, products and accessions, all books, correspondence, credit
files, records, invoices and other papers.
3.02 OBLIGATIONS UNCONDITIONAL. The obligations of the Parent
under Section 3.01 hereof are absolute, unconditional and irrevocable,
irrespective of the value, genuineness, validity, regularity or enforceability
of the Secured Obligations, or any substitution, release or exchange of any
other guarantee of or security for any of the Secured Obligations, and, to the
fullest extent permitted by applicable law, irrespective of any other
circumstance whatsoever that might otherwise constitute a legal or equitable
discharge or defense available to the Parent, it being the intent of this
Section 3.02 that the obligations of the Parent hereunder shall be absolute,
unconditional and irrevocable under any and all circumstances. Without limiting
the generality of the foregoing, it is agreed that the occurrence of any one or
more of the following shall not alter or impair the liability of the Parent
hereunder which shall remain absolute, unconditional and irrevocable as
described above:
(a) at any time or from time to time, without notice to the
Parent, the time for any performance of or compliance with any of the
Secured Obligations shall be extended, or such performance or
compliance shall be waived;
(b) any of the acts mentioned in any of the provisions of this
Agreement, the Credit Agreement, the Notes, the Put Agreement, the
Standby Purchase Agreement or any other agreement or instrument
referred to therein shall be done or omitted;
(c) the maturity of any of the Secured Obligations shall be
accelerated, or any of the Secured Obligations shall be modified,
supplemented or amended in any respect, or any right under this
Agreement, the Credit Agreement, the Notes, the Put Agreement, the
Standby Purchase Agreement or any other agreement or instrument
referred to therein shall be waived or any guarantee of any of the
Secured Obligations or any security therefor shall be released or
exchanged in whole or in part or otherwise dealt with; or
(d) any change in the financial condition (including,
without limitation, insolvency or bankruptcy) of the Company.
The Parent hereby expressly waives all of the defenses referred to above and
diligence, presentment, demand of payment, protest and all notices whatsoever,
and any requirement that the Administrative Agent or any Lender exhaust any
right, power or remedy or proceed against the Company or any other Person under
the Credit Agreement, the Notes, the Put Agreement, the Standby Purchase
Agreement or any other agreement or instrument referred therein, or against any
other Person under any other guarantee of, or security for, any of the
Obligations.
Section 4. COVENANTS. The Parent agrees that, until the
payment and satisfaction in full of the Secured Obligations and the expiration
or termination of the Commitments of the Lenders under the Credit Agreement:
4.01 LITIGATION. The Parent will promptly give to each Lender
notice of all legal or arbitral proceedings, and of all proceedings by or before
any governmental or regulatory authority or agency, affecting the Parent, except
proceedings that, if adversely determined, would not (either
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individually or in the aggregate) have a material adverse effect on the making
or performance by the Parent of this Agreement or the validity or enforceability
thereof.
4.02 CORPORATE EXISTENCE, ETC. The Parent will: preserve and
maintain its corporate existence and all of its material rights, privileges and
franchises; comply with the requirements of all applicable laws, rules,
regulations and orders of governmental or regulatory authorities if failure to
comply with such requirements could (either individually or in the aggregate)
materially and adversely affect the making or performance by the Parent of this
Agreement or the validity or enforceability thereof; pay and discharge all
taxes, assessments and governmental charges or levies imposed on it or on its
income or profits or on any of its property prior to the date on which penalties
attach thereto, except for any such tax, assessment, charge or levy the payment
of which is being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained; and permit representatives of any
Lender or the Administrative Agent, during normal business hours, to examine,
copy and make extracts from its books and records relating to the Collateral.
Section 5. FURTHER ASSURANCES; REMEDIES. In furtherance of the
grant of the pledge and security interest pursuant to Section 3.01 hereof, the
Parent hereby agrees with each Lender and the Administrative Agent as follows:
5.01 DELIVERY AND OTHER PERFECTION. The Parent shall:
(a) if any of the shares, securities, moneys or property
required to be pledged by the Parent under clauses (a), (b) and (c) of
Section 3.01 hereof are received by the Parent, forthwith either (x)
transfer and deliver to the Administrative Agent such shares or
securities so received by the Parent (together with the certificates
for any such shares and securities duly endorsed in blank or
accompanied by undated stock powers duly executed in blank), all of
which thereafter shall be held by the Administrative Agent, pursuant to
the terms of this Agreement, as part of the Collateral or (y) take such
other action as the Administrative Agent shall deem necessary or
appropriate to duly record the Lien created hereunder in such shares,
securities, moneys or property in said clauses (a), (b) and (c);
(b) give, execute, deliver, file and/or record any financing
statement, notice, instrument, document, agreement or other papers that
may be necessary or desirable (in the judgment of the Administrative
Agent) to create, preserve, perfect or validate the security interest
granted pursuant hereto or to enable the Administrative Agent to
exercise and enforce its rights hereunder with respect to such pledge
and security interest, including, without limitation, causing any or
all of the Collateral to be transferred of record into the name of the
Administrative Agent or its nominee (and the Administrative Agent
agrees that if any Collateral is transferred into its name or the name
of its nominee, the Administrative Agent will thereafter promptly give
to the Parent copies of any notices and communications received by it
with respect to the Collateral);
(c) keep full and accurate books and records relating to the
Collateral, and stamp or otherwise mark such books and records in such
manner as the Administrative Agent may reasonably require in order to
reflect the security interests granted by this Agreement; and
(d) permit representatives of the Administrative Agent, upon
reasonable notice, at any
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time during normal business hours to inspect and make abstracts from
its books and records pertaining to the Collateral, and permit
representatives of the Administrative Agent to be present at the
Parent's place of business to receive copies of all communications and
remittances relating to the Collateral, and forward copies of any
notices or communications received by the Parent with respect to the
Collateral, all in such manner as the Administrative Agent may
require.
5.02 OTHER FINANCING STATEMENTS AND LIENS. Without the prior
written consent of the Administrative Agent (granted with the authorization of
the Lenders as specified in Section 10.09 of the Credit Agreement), the Parent
shall not file or suffer to be on file, or authorize or permit to be filed or to
be on file, in any jurisdiction, any financing statement or like instrument with
respect to the Collateral in which the Administrative Agent is not named as the
sole secured party for the benefit of the Lenders.
5.03 PRESERVATION OF RIGHTS. The Administrative Agent shall
not be required to take steps necessary to preserve any rights against prior
parties to any of the Collateral.
5.04 COLLATERAL.
(1) The Parent will cause the Pledged Stock to constitute at
all times 100% of the total number of shares of each class of capital stock of
the Company then outstanding.
(2) So long as no Event of Default shall have occurred and be
continuing, the Parent shall have the right to exercise all voting, consensual
and other powers of ownership pertaining to the Pledged Stock for all purposes
not inconsistent with the terms of this Agreement, the Credit Agreement, the
Notes, the Put Agreement or any other instrument or agreement referred to herein
or therein, PROVIDED that the Parent agrees that it will not vote the Collateral
in any manner that is inconsistent with the terms of this Agreement, the Credit
Agreement, the Notes, the Put Agreement or any such other instrument or
agreement; and the Administrative Agent shall execute and deliver to the Parent
or cause to be executed and delivered to the Parent all such proxies, powers of
attorney, dividend and other orders, and all such instruments, without recourse,
as the Parent may reasonably request for the purpose of enabling the Parent to
exercise the rights and powers that it is entitled to exercise pursuant to this
Section 5.04(2).
(3) Unless and until an Event of Default has occurred and is
continuing, the Parent shall be entitled to receive, retain and use any
dividends on the Pledged Stock paid in cash out of earned surplus and all
proceeds of all other Collateral.
(4) If any Event of Default shall have occurred, then so long
as such Event of Default shall continue, and whether or not the Administrative
Agent or any Lender exercises any available right to declare any Secured
Obligation due and payable or seeks or pursues any other relief or remedy
available to it under applicable law or under this Agreement, the Credit
Agreement, the Notes or any other agreement relating to such Secured Obligation,
all dividends and other distributions on the Collateral shall be paid directly
to the Administrative Agent and retained by it as part of the Collateral,
subject to the terms of this Agreement, and, if the Administrative Agent shall
so request in writing, the Parent agrees to execute and deliver to the
Administrative Agent appropriate additional dividend, distribution and other
orders and documents to that end, PROVIDED that if such Event of Default is
cured, any such dividend or distribution theretofore paid to the Administrative
Agent shall, upon request of the Parent (except to the extent theretofore
applied to the Secured Obligations), be returned by the Administrative Agent to
the Parent.
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5.05 EVENTS OF DEFAULT, ETC. During the period during which an
Event of Default shall have occurred and be continuing, but subject to the
provisions of Section 6.11 hereof:
(a) the Administrative Agent shall have all of the rights and
remedies with respect to the Collateral of a secured party under the
Uniform Commercial Code (whether or not said Code is in effect in the
jurisdiction where the rights and remedies are asserted) and such
additional rights and remedies to which a secured party is entitled
under the laws in effect in any jurisdiction where any rights and
remedies hereunder may be asserted, including, without limitation, the
right, to the maximum extent permitted by law, to exercise all voting,
consensual and other powers of ownership pertaining to the Collateral
as if the Administrative Agent were the sole and absolute owner thereof
(and the Parent agrees to take all such action as may be appropriate to
give effect to such right);
(b) the Administrative Agent in its discretion may, in its
name or in the name of the Parent or otherwise, demand, sue for,
collect or receive any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral, but
shall be under no obligation to do so; and
(c) the Administrative Agent may, upon ten business days'
prior written notice to the Parent of the time and place, with respect
to the Collateral or any part thereof that shall then be or shall
thereafter come into the possession, custody or control of the
Administrative Agent, the Lenders or any of their respective agents,
sell, lease, assign or otherwise dispose of all or any part of such
Collateral, at such place or places as the Administrative Agent deems
best, and for cash or for credit or for future delivery (without
thereby assuming any credit risk), at public or private sale, without
demand of performance or notice of intention to effect any such
disposition or of the time or place thereof (except such notice as is
required above or by applicable statute and cannot be waived), and the
Administrative Agent or any Lender or anyone else may be the purchaser,
lessee, assignee or recipient of any or all of the Collateral
so disposed of at any public sale (or, to the extent permitted by law,
at any private sale) and thereafter hold the same absolutely, free from
any claim or right of whatsoever kind, including any right or equity of
redemption (statutory or otherwise), of the Parent, any such demand,
notice and right or equity being hereby expressly waived and released.
The Administrative Agent may, without notice or publication, adjourn
any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the sale, and
such sale may be made at any time or place to which the sale may be so
adjourned.
The proceeds of each collection, sale or other disposition under this Section
5.05 shall be applied in accordance with Section 5.09 hereof.
The Parent recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, and applicable state
securities laws, the Administrative Agent may be compelled, with respect to any
sale of all or any part of the Collateral, to limit purchasers to those who will
agree, among other things, to acquire the Collateral for their own account, for
investment and not with a view to the distribution or resale thereof. The Parent
acknowledges that any such private sales may be at prices and on terms less
favorable to the Administrative Agent than those obtainable through a public
sale without such restrictions, and, notwithstanding such circumstances, agrees
that any such private sale shall not be deemed, for that reason alone, not to
have been made in a commercially
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reasonable manner and that the Administrative Agent shall have no obligation to
engage in public sales and no obligation to delay the sale of any Collateral for
the period of time necessary to permit the Company or issuer thereof to register
it for public sale.
5.06 NO LIABILITY FOR DEFICIENCY. If the proceeds of sale,
collection or other realization of or upon the Collateral pursuant to Section
5.05 hereof are insufficient to cover the costs and expenses of such realization
and the payment in full of the Secured Obligations, the Parent shall not be
liable for any deficiency.
5.07 REMOVALS, ETC. Without at least 30 days' prior written
notice to the Administrative Agent, the Parent shall not (i) maintain any of its
books and records with respect to the Collateral at any office or maintain its
principal place of business at any place other than at the address indicated
beneath its signature hereto or (ii) change its name, or the name under which it
does business, from the name shown on the signature pages hereto.
5.08 PRIVATE SALE. The Administrative Agent and the Lenders
shall incur no liability as a result of the sale of the Collateral, or any part
thereof, at any private sale pursuant to Section 5.05 hereof conducted in a
commercially reasonable manner. The Parent hereby waives any claims against the
Administrative Agent or any Lender arising by reason of the fact that the price
at which the Collateral may have been sold at such a private sale was less than
the price that might have been obtained at a public sale or was less than the
aggregate amount of the Secured Obligations, even if the Administrative Agent
accepts the first offer received and does not offer the Collateral to more than
one offeree.
5.09 APPLICATION OF PROCEEDS. Except as otherwise herein
expressly provided, the proceeds of any collection, sale or other realization of
all or any part of the Collateral pursuant hereto shall be applied by the
Administrative Agent:
FIRST, to the payment of the costs and expenses of such
collection, sale or other realization, including reasonable
out-of-pocket costs and expenses of the Administrative Agent and the
fees and expenses of its agents and counsel, and all expenses incurred
and advances made by the Administrative Agent in connection therewith;
NEXT, to the payment in full of the Secured Obligations, in
each case equally and ratably in accordance with the respective amounts
thereof then due and owing or as the Lenders holding the same may
otherwise agree; and
FINALLY, to the payment to the Parent, or its successors or
assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining.
As used in this Section 5, "PROCEEDS" of Collateral shall mean
cash, securities and other property realized in respect of, and distributions in
kind of, Collateral, including any thereof received under any reorganization,
liquidation or adjustment of debt of the Parent or any issuer of or obligor on
any of the Collateral.
5.10 ATTORNEY-IN-FACT. Without limiting any rights or powers
granted by this Agreement to the Administrative Agent while no Event of Default
has occurred and is continuing, upon the occurrence and during the continuance
of any Event of Default the Administrative Agent is hereby
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appointed the attorney-in-fact of the Parent for the purpose of carrying out the
provisions of this Section 5 and taking any action and executing any instruments
that the Administrative Agent may deem necessary or advisable to accomplish the
purposes hereof, which appointment as attorney-in-fact is irrevocable and
coupled with an interest. Without limiting the generality of the foregoing, so
long as the Administrative Agent shall be entitled under this Section 5 to make
collections in respect of the Collateral, the Administrative Agent shall have
the right and power to receive, endorse and collect all checks made payable to
the order of the Parent representing any dividend, payment or other distribution
in respect of the Collateral or any part thereof and to give full discharge for
the same.
5.11 PERFECTION. Prior to or concurrently with the execution
and delivery of this Agreement, the Parent shall deliver to the Administrative
Agent all certificates identified in Annex 1 hereto, accompanied by undated
stock powers duly executed in blank.
5.12 TERMINATION. When all Secured Obligations shall have been
paid in full and the Commitments of the Lenders under the Credit Agreement shall
have expired or been terminated, this Agreement shall terminate, and the
Administrative Agent shall forthwith cause to be assigned, transferred and
delivered, against receipt but without any recourse, warranty or representation
whatsoever, any remaining Collateral and money received in respect thereof, to
or on the order of the Parent.
5.13 FURTHER ASSURANCES. The Parent agrees that, from time to
time upon the written request of the Administrative Agent, the Parent will
execute and deliver such further documents and do such other acts and things as
the Administrative Agent may reasonably request in order fully to effect the
purposes of this Agreement.
Section 6. MISCELLANEOUS.
6.01 NO WAIVER. No failure on the part of the Administrative
Agent or any Lender to exercise, and no course of dealing with respect to, and
no delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by the Administrative
Agent or any Lender of any right, power or remedy hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
The remedies herein are cumulative and are not exclusive of any remedies
provided by law.
6.02 NOTICES. All notices, requests, consents and demands
hereunder shall be in writing and telecopied or delivered to the intended
recipient at the "Address for Notices" specified beneath its name on the
signature pages hereof (or, as to the Administrative Agent, on the signature
pages of the Credit Agreement) or, as to either party, at such other address as
shall be designated by such party in a notice to the other party. Except as
otherwise provided in this Agreement, all such communications shall be deemed to
have been duly given when transmitted by telecopier or personally delivered or,
in the case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
6.03 AMENDMENTS, ETC. The terms of this Agreement may be
waived, altered or amended only by an instrument in writing duly executed by the
Parent and the Administrative Agent (with the consent of the Lenders as
specified in Section 10.09 of the Credit Agreement). Any such amendment or
waiver shall be binding upon the Administrative Agent and each Lender, each
holder of any of the Secured Obligations and the Parent.
6.04 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of the
Parent, the Administrative Agent, the Lenders and
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each holder of any of the Secured Obligations (PROVIDED, however, that the
Parent shall not assign or transfer its rights hereunder without the prior
written consent of the Administrative Agent).
6.05 CAPTIONS. The captions and section headings appearing
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
6.06 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and either of the parties hereto may execute this Agreement by
signing any such counterpart.
6.07 GOVERNING LAW, ETC. This Agreement shall be governed by,
and construed in accordance with, the law of the State of New York. The Parent
hereby submits to the nonexclusive jurisdiction of the United States District
Court for the Southern District of New York and of the Supreme Court of the
State of New York sitting in New York County (including its Appellate
Division), and of any other appellate court in the State of New York, for the
purposes of all legal proceedings arising out of or relating to this Agreement
or the transactions contemplated hereby. The Parent hereby irrevocably waives,
to the fullest extent permitted by applicable law, any objection that it may now
or hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum. EACH OF THE PARENT, THE ADMINISTRATIVE
AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
6.08 AGENTS AND ATTORNEYS-IN-FACT. The Administrative Agent
may employ agents and attorneys-in-fact in connection herewith and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith.
6.09 SEVERABILITY. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Administrative
Agent and the Lenders in order to carry out the intentions of the parties hereto
as nearly as may be possible and (ii) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
6.10 THE ADMINISTRATIVE AGENT. As provided in Section 10 of
the Credit Agreement, each Lender has appointed The Chase Manhattan Bank as its
agent for purposes of this Agreement. Following the payment in full of all
Secured Obligations outstanding under the Credit Agreement and the termination
or expiration of the Commitments thereunder, the provisions of said Section 10
shall be deemed to continue in full force and effect for the benefit of the
Administrative Agent under this Agreement. In that connection, following such
payment in full and expiration and termination of the Commitments, the term
"Majority Lenders" (as defined in said Section 1.01) shall be deemed to refer to
Lenders holding Secured Obligations representing at least 66-2/3% of the
aggregate Secured Obligations.
6.11 CERTAIN REGULATORY REQUIREMENTS. The Administrative Agent
hereby acknowledges that, in connection with any exercise by it of the rights
and remedies afforded to it hereunder, it may be necessary to provide notice to
and/or obtain the prior consent or approval of certain governmental authorities.
Notwithstanding anything to the contrary contained herein, the Administrative
Agent will not take any action pursuant to this Agreement which would constitute
or result in any
<PAGE> 86
- 85 -
transfer of control over the Company, or any other action, if such action, in
either case, requires notice to and/or the prior consent or approval of
governmental authorities without first providing such notice and/or obtaining
such consent or approval. Upon the exercise by the Administrative Agent of any
power, right or privilege or remedy pursuant to this Agreement which requires
any consent, approval, recording, qualification or authorization of any
governmental authority, the Parent will, and will cause the Company to, (a)
execute and deliver, or cause the execution and delivery of, all applications,
instruments or other documents and papers that the Administrative Agent may
reasonably require to be obtained for such governmental consent, approval,
recording, qualification or authorization, (b) use its best efforts otherwise to
secure such governmental consent, approval, recording, qualification or
authorization and (c) take no action inconsistent therewith. The Parent
acknowledges that the Administrative Agent has no adequate remedy at law for the
breach of any obligation of this Section 6.11, and that such obligations shall
be enforceable by specific performance.
<PAGE> 87
- 86 -
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
BROAD STREET CONTRACT
SERVICES, INC.
By _________________________
Title:
Address for Notices:
Broad Street Contract Services, Inc.
2 Wall Street
New York, New York 10005
Attention: Kevin Burns
Telecopier No.: 212-346-9012
Telephone No.: 212-346-9007
THE CHASE MANHATTAN BANK,
as Administrative Agent
By _________________________
Title:
<PAGE> 88
- 87 -
ANNEX 1
PLEDGED STOCK
-------------
[See Section 2.07(b) and (c)]
<TABLE>
<CAPTION>
Certificate Registered
Issuer Nos. Owner Number of Shares
- ------ ---- ----- ----------------
<S> <C> <C> <C>
SAF Funding 1 Broad Street 1000
Corporation Contract
Services, Inc.
</TABLE>
<PAGE> 89
- 88 -
EXHIBIT D
[Form of Put Agreement]
[To be supplied]
<PAGE> 90
Put Agreement
Schedule I
Part A
Indebtedness in Excess OF $5,000,000
------------------------------------
Disclosure of Schedule Omitted
<PAGE> 91
Put Agreement
Schedule I
Part B
Liens
-----
Disclosure of Schedule Omitted
<PAGE> 92
Put Agreement
Schedule II
Part A
Subsidiaries of State Auto Mutual
---------------------------------
Disclosure of Schedule Omitted
<PAGE> 93
ORGANIZATIONAL STRUCTURE
OF
STATE AUTO HOLDING COMPANY SYSTEM
[GRAPHIC OMITTED]
<PAGE> 94
Put Agreement
Schedule II
Part B
Investments
-----------
Disclosure of Schedule Omitted
<PAGE> 95
Put Agreement
Schedule IV
Part A
Equity Rights
-------------
Disclosure of Schedule Omitted
<PAGE> 96
Put Agreement
Schedule IV
Part B
Disclosure of Schedule Omitted
<PAGE> 97
Standby Purchase Agreement
Schedule I
Part A
Equity Rights
Disclosure of Schedule Omitted
<PAGE> 98
Standby Purchase Agreement
Schedule I
Part B
Disclosure of Schedule Omitted
<PAGE> 99
-90-
EXHIBIT F to the
Credit Agreement
[Form of Opinion of Counsel to the Company]
August 16, 1996
To each of the Lenders party to the
Credit Agreement referred to
below and The Chase Manhattan Bank,
as Administrative Agent
Ladies and Gentlemen:
We have acted as counsel to SAF Funding Corporation (the
"COMPANY") and Broad Street Contract Services, Inc. (the "PARENT" and, together
with the Company, the "OBLIGORS") in connection with (i) the Credit Agreement
dated as of August 16, 1996 (the "CREDIT AGREEMENT") between the Company, the
lenders party thereto (the "LENDERS") and The Chase Manhattan Bank, in its
capacity as administrative agent for said Lenders (the "ADMINISTRATIVE AGENT"),
providing for, among other things, extensions of credit to be made by the
Lenders to the Company in an aggregate principal or stated amount not exceeding
$100,000,000 and (ii) the agreements, instruments and other documents referred
to in the next paragraph. All capitalized terms used but not defined herein have
the respective meanings given to such terms in the Credit Agreement or, if not
defined in the Credit Agreement, in Annex 1 hereto. This opinion letter is
delivered to you pursuant to Section 6.01(g) of the Credit Agreement.
In rendering the opinions expressed below, we have examined
the following agreements, instruments and other documents:
(a) the Credit Agreement;
(b) the Company Pledge Agreement;
(c) the Parent Pledge Agreement;
(d) the Standby Purchase Agreement (collectively with the
agreements referred to in clauses (a) through (c), the
"CREDIT DOCUMENTS");
(e) certain financing statements being executed and delivered
pursuant to Section 6( ) of the Credit Agreement
concurrently with the delivery of this opinion
(collectively, the "FINANCING STATEMENTS"); and
<PAGE> 100
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(f) such records of the Obligors and such other documents as we
have deemed necessary as a basis for the opinions expressed
below.
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity with authentic original documents of all documents submitted to
us as copies. When relevant facts were not independently established, we have
relied upon certificates of governmental officials and appropriate
representatives of the Obligors and upon representations made in or pursuant to
the Credit Documents.
In rendering the opinions expressed below, we have assumed,
with respect to all of the documents referred to in this opinion letter, that
(except, to the extent set forth in the opinions expressed below, as to the
Obligors):
(i) such documents have been duly authorized by, have been duly
executed and delivered by, and constitute legal, valid,
binding and enforceable obligations of, all of the parties to
such documents;
(ii) all signatories to such documents have been duly authorized;
and
(iii) all of the parties to such documents are duly organized and
validly existing and have the power and authority (corporate,
partnership or other) to execute, deliver and perform such
documents.
Based upon and subject to the foregoing and subject also to
the comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that:
1. Each Obligor is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware.
2. Each Obligor has all requisite corporate power to execute
and deliver, and to perform its obligations and to incur
liabilities under, the Credit Documents to which it is intended to
be a party.
3. The execution, delivery and performance by each Obligor of,
and the incurrence by such Obligor of liabilities under, each
Credit Document to which it is intended to be a party have been
duly authorized by all necessary corporate action on the part of
the Company.
4. Each Credit Document has been duly executed and delivered
by the Company.
5. Each Credit Document constitutes the legal, valid and
binding obligation of each
<PAGE> 101
-92-
Obligor party thereto, enforceable against such Obligor in
accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or transfer or other similar laws relating to or
affecting the rights of creditors generally and except as the
enforceability of the Credit Documents is subject to the
application of general principles of equity (regardless of
whether considered in a proceeding in equity or at law),
including, without limitation, (a) the possible unavailability of
specific performance, injunctive relief or any other equitable
remedy and (b) concepts of materiality, reasonableness, good
faith and fair dealing.
6. No authorization, approval or consent of, and no filing or
registration with, any governmental or regulatory authority or
agency of the United States of America or the State of New York is
required on the part of either Obligor for the execution, delivery
or performance by such Obligor of, or for the incurrence by such
Obligor of any liabilities under, any of the Credit Documents.
7. The execution, delivery and performance by each Obligor of,
and the consummation by such Obligor of the transactions
contemplated by, the Credit Documents do not and will not (a)
violate any provision of the charter or by-laws of such Obligor,
(b) violate any provision of the Delaware General Corporation Law,
(c) violate any applicable law, rule or regulation of the United
States of America or the State of New York, (d) violate any order,
writ, injunction or decree of any court or governmental authority
or agency or any arbitral award applicable to such Obligor of which
we have knowledge (after due inquiry) or (e) result in a breach of,
constitute a default under, require any consent under, or result in
the acceleration or required prepayment of any indebtedness
pursuant to the terms of, any agreement or instrument of which we
have knowledge (after due inquiry) to which such Obligor is a party
or by which it is bound or to which it is subject, or (except for
the Liens created pursuant to the Pledge Agreements) result in the
creation or imposition of any Lien upon any Property of such
Obligor pursuant to the terms of any such agreement or instrument.
8. We have no knowledge (after due inquiry) of any legal or
arbitral proceedings, or any proceedings by or before any
governmental or regulatory authority or agency, now pending or
threatened against or affecting either Obligor or any of its
Properties that, if adversely determined, could have a Material
Adverse Effect.
9. The issued and outstanding shares of capital stock of the
Company consist of the type and number of shares described in Annex
1 to the Parent Pledge Agreement. All of said shares have been duly
and validly issued and are fully paid and nonassessable.
10. Each Pledge Agreement is effective to create, in favor of
the Administrative Agent for the benefit of the Administrative
Agent and the Lenders, a valid security interest under the Uniform
Commercial Code as in effect in the State of New York (the "UCC")
in all of the right, title and interest of the Obligor party
thereto in, to and under the Collateral (as defined in such Pledge
Agreement) as collateral security for the payment when due of the
Secured Obligations (as defined in such Pledge Agreement), except
that (a) such security interest will
<PAGE> 102
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continue in Collateral (as so defined) after its sale, exchange
or other disposition and in any Proceeds thereof only to the
extent provided in Section 9-306 of the UCC, (b) such security
interest in any portion of the Collateral (as so defined) in
which such Obligor acquires rights after the commencement of a
case under the Bankruptcy Code in respect of the Company may be
limited by Section 552 of the Bankruptcy Code and (c) the
creation of a security interest in any Pledged Stock (as defined
in such Pledge Agreement) constituting a Security requires the
transfer thereof to the Administrative Agent pursuant to Section
8-313(1) of the UCC, which transfer in the case of a Certificated
Security, may be effected in the manner contemplated by paragraph
11 below.
11. The security interest referred to in paragraph 10 above in
that portion of such Collateral consisting of a Certificated
Security (including the Pledged Stock (as defined in the Pledge
Agreements)), will, upon the creation of such security interest, be
perfected by the Administrative Agent taking and thereafter
retaining possession in the State of New York of such Certificated
Security (or any certificates representing any such Certificated
Security).
12. The security interest referred to in paragraph 10 above in
the Standby Purchase Agreement will, upon the creation of such
security interest, be perfected by filing the Financing Statements
in the offices of the Secretary of State of the State of New York
and the County Clerk of New York County, New York.
13. With respect to any portion of such Collateral consisting
of a Certificated Security (including the Pledged Stock (as defined
in the Pledge Agreements)), if such security interest in perfected
by the Administrative Agent in the manner specified in paragraph 11
above in good faith and without notice of any Adverse Claim and in
bearer form or in registered form issued to the Administrative
Agent or indorsed to the Administrative Agent or in blank, such
perfected security interest will have priority over all other
security interests theretofore or thereafter created under the UCC.
The foregoing opinions are subject to the following comments
and qualifications:
(A) The enforceability of provisions in the Credit Documents
to the effect that terms may not be waived or modified except in
writing may be limited under certain circumstances.
(B) We express no opinion as to (i) the effect of the laws of
any jurisdiction in which any Lender is located (other than the
State of New York) that limit the interest, fees or other charges
such Lender may impose for the loan or use of money or other
credit, (ii) Section 4.07(c) of the Credit Agreement, (iii) the
second paragraph of Section 11.01 of the Credit Agreement and (iv)
the second sentence of Section 11.09 of the Credit Agreement (and
any similar provisions in any of the other Credit Documents),
insofar as such sentence relates to the subject matter jurisdiction
of the United States District Court for the Southern District of
New York to adjudicate any controversy related to the Credit
Documents.
(C) We wish to point out that the obligations of either
Obligor, and the rights and
<PAGE> 103
-94-
remedies of the Administrative Agent, under the Pledge Agreement
to which such Obligor is a party may be subject to possible
limitations upon the exercise of remedial or procedural
provisions contained in such Pledge Agreement, provided that such
limitations do not, in our opinion (but subject to the other
comments and qualifications set forth in this opinion letter),
make the remedies and procedures that will be afforded to the
Administrative Agent and the Lenders inadequate for the practical
realization of the substantive benefits purported to be provided
to the Administrative Agent and the Lenders by such Pledge
Agreement.
(D) With respect to our opinions in paragraphs 10 through 13
above, we express no opinion as to the creation, perfection or
priority of any security interest in (or other lien on) any portion
of the Collateral (as defined in either Pledge Agreement) (i) to
the extent that, pursuant to Section 9-104 of the UCC, Article 9
of the UCC does not apply thereto or (ii) consisting of
Uncertificated Securities.
(E) We express no opinion as to the existence of, or the
right, title or interest of the Company in, to or under, any of the
Collateral (as defined in either Pledge Agreement).
(F) Except as expressly provided in paragraphs 10 through 13
above, we express no opinion as to the creation, perfection or
priority of any security interest in, or other lien on, the
Collateral (as defined in the Company Pledge Agreement).
(G) We invite your attention to the fact that an act to amend
Articles 8 and 9 of the New York Uniform Commercial Code was
introduced in the New York State Assembly on March 18, 1996
(Assembly Bill No. 9454) and in the New York State Senate on March
20, 1996 (Senate Bill No. 6571). This act (which was referred to
the Committee on Judiciary) would replace the current Article 8
(and certain related provisions of Article 9) with the version of
revised Article 8 adopted by the American Law Institute and the
National Conference of Commissioners on Uniform State Laws in 1994.
If enacted in the form proposed, this act would materially change
the opinions expressed in paragraphs 2, 3 and 4 above (insofar as
such opinions relate to Securities) were such opinions to be
rendered after such enactment.
The foregoing opinions are limited to matters involving the
Federal laws of the United States of America, the Delaware General Corporation
Law and the law of the State of New York, and we do not express any opinion as
to the laws of any other jurisdiction.
At the request of our clients, this opinion letter is provided
to you by us in our capacity as counsel to the Obligors, and this opinion letter
may not be relied upon by any Person for any purpose other than in connection
with the transactions contemplated by the Credit Agreement without, in each
instance, our prior written consent.
Very truly yours,
<PAGE> 104
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Annex 1
DEFINED TERMS
"ADVERSE CLAIM" means an "adverse claim" within the meaning of
Section 8-302(2) of the UCC.
"CERTIFICATED SECURITY" means a "certificated security" within
the meaning of Section 8- 102(1)(a) of the UCC, other than a Clearing
Corporation Security.
"CLEARING CORPORATION" means a "clearing corporation" within
the meaning of Section 8-102(3) of the UCC.
"CLEARING CORPORATION SECURITY" means a Security that is
either (a) an Uncertificated Security that is (i) issued by an issuer organized
under the laws of the State of New York and (ii) registered in the name of a
Clearing Corporation or of a Custodian or the nominee of a Clearing Corporation
or such Custodian or (b) a "certificated security" (within the meaning of
Section 8- 102(1)(a) of the UCC) that is (i) held in the State of New York in
the custody of a Clearing Corporation or of a Custodian or the nominee of such
Clearing Corporation or such Custodian subject to the exclusive control of such
Clearing Corporation and (ii) in bearer form or indorsed in blank by an
appropriate Person or registered in the name of a Clearing Corporation or of a
Custodian or the nominee of such Clearing Corporation or such Custodian subject
to the exclusive control of such Clearing Corporation.
"CUSTODIAN" means a "custodian" within the meaning of Section
8-102(4) of the UCC.
"PROCEEDS" means "proceeds" within the meaning of Section
9-306(1) of the UCC.
"SECURITY" means a "security" as such term is defined in
Section 8-102(1)(c) of the UCC.
"UNCERTIFICATED SECURITY" means an "uncertificated security"
within the meaning of Section 8-102(1)(b) of the UCC.
<PAGE> 105
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EXHIBIT G to the
Credit Agreement
[Form of Opinion of Special New York Counsel to Chase]
August 16, 1996
To the Lenders party to the
Credit Agreement referred to
below and The Chase Manhattan Bank,
as Administrative Agent
Ladies and Gentlemen:
We have acted as special New York counsel to The Chase
Manhattan Bank, ("CHASE") in connection with (i) the Credit Agreement dated as
of August 16, 1996 (the "CREDIT AGREEMENT") between SAF Funding Corporation (the
"COMPANY"), the lenders party thereto (the "LENDERS") and Chase, as
Administrative Agent, providing for loans to be made by the Lenders to the
Company in an aggregate principal amount not exceeding $100,000,000 and (ii) the
various other agreements, instruments and other documents referred to in the
next following paragraph. All capitalized terms used but not defined herein have
the respective meanings given to such terms in the Credit Agreement or, if not
defined in the Credit Agreement, in Annex 1 hereto. This opinion letter is being
delivered pursuant to Section 6.01(h) of the Credit Agreement.
In rendering the opinions expressed below, we have examined
the following agreements, instruments and other documents:
(a) the Credit Agreement;
(b) the Company Pledge Agreement;
(c) the Parent Pledge Agreement;
(d) the Put Agreement; and
(e) the Standby Purchase Agreement.
The agreements, instruments and other documents referred to in the foregoing
lettered clauses are collectively referred to as the "BASIC DOCUMENTS"; the
Company Pledge Agreement and the Parent Pledge Agreement are collectively
referred to as the "PLEDGE AGREEMENTS"; the Company, the Parent and the State
Auto Obligors are herein collectively referred to as the "OBLIGORS".
<PAGE> 106
-97-
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity with authentic original documents of all documents submitted to
us as copies. When relevant facts were not independently established, we have
relied upon representations made in or pursuant to the Credit Documents.
In rendering the opinions expressed below, we have assumed,
with respect to all of the documents referred to in this opinion letter, that:
(i) such documents have been duly authorized by, have
been duly executed and delivered by, and (except to
the extent set forth in the opinions below as to the
Obligors) constitute legal, valid, binding and
enforceable obligations of, all of the parties to
such documents;
(ii) all signatories to such documents have been duly
authorized; and
(iii) all of the parties to such documents are duly
organized and validly existing and have the power and
authority (corporate or other) to execute, deliver
and perform such documents.
Based upon and subject to the foregoing and subject also to
the comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that:
1. Each of the Basic Documents constitutes the legal, valid
and binding obligation of each Obligor party thereto, enforceable
against such Obligor in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting the rights of creditors
generally and except as the enforceability of the Basic Documents
is subject to the application of general principles of equity
(regardless of whether considered in a proceeding in equity or at
law), including, without limitation, (a) the possible
unavailability of specific performance, injunctive relief or any
other equitable remedy and (b) concepts of materiality,
reasonableness, good faith and fair dealing.
2. Each Pledge Agreement is effective to create, in favor of
the Administrative Agent for the benefit of the Administrative
Agent and the Lenders, a valid security interest under the Uniform
Commercial Code as in effect in the State of New York (the "UCC")
in all of the right, title and interest of the Obligor party
thereto in, to and under the Collateral (as defined in such Pledge
Agreement) as collateral security for the payment when due of the
Secured Obligations (as defined in such Pledge Agreement), except
that (a) such security interest will continue in Collateral (as so
defined) after its sale, exchange or other disposition and in any
Proceeds thereof only to the extent provided in Section 9-306 of
the UCC, (b) such security interest in any portion of the
Collateral (as so defined) in which such Obligor acquires rights
after the commencement of a case under the Bankruptcy Code in
respect of such Obligor may be limited by Section 552 of the
Bankruptcy Code and (c) the creation of a security interest in any
Pledged Stock (as defined in such Pledge Agreement) constituting a
Security requires the
<PAGE> 107
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transfer thereof to the Administrative Agent pursuant to Section
8-313(1) of the UCC, which transfer in the case of a Certificated
Security, may be effected in the manner contemplated by paragraph
3 below.
3. The security interest referred to in paragraph 2 above in
that portion of such Collateral consisting of a Certificated
Security (including the Pledged Stock (as defined in the Pledge
Agreements)), will, upon the creation of such security interest, be
perfected by the Administrative Agent taking and thereafter
retaining possession in the State of New York of such Certificated
Security (or any certificates representing any such Certificated
Security).
4. With respect to any portion of such Collateral consisting
of a Certificated Security (including the Pledged Stock (as defined
in the Pledge Agreements)), if such security interest in perfected
by the Administrative Agent in the manner specified in paragraph 3
above in good faith and without notice of any Adverse Claim and in
bearer form or in registered form issued to the Administrative
Agent or indorsed to the Administrative Agent or in blank, such
perfected security interest will have priority over all other
security interests theretofore or thereafter created under the UCC.
The foregoing opinions are subject to the following comments
and qualifications:
(A) The enforceability of Section 5.03 of the Put Agreement
and Section 6.04 of the Standby Purchase Agreement (and any similar
provision in any of the other Basic Documents) may be limited by
(i) laws rendering unenforceable indemnification contrary to
Federal or state securities laws and the public policy underlying
such laws and (ii) laws limiting the enforceability of provisions
exculpating or exempting a party, or requiring indemnification of a
party for, liability for its own action or inaction, to the extent
the action or inaction involves gross negligence, recklessness,
willful misconduct or unlawful conduct.
(B) The enforceability of provisions in the Basic Documents to
the effect that terms may not be waived or modified except in
writing may be limited under certain circumstances.
(C) We express no opinion as to (i) the effect of the laws of
any jurisdiction in which any Bank is located (other than the State
of New York) that limit the interest, fees or other charges such
Bank may impose, (ii) Section 4.07(c) of the Credit Agreement,
(iii) the second paragraph of Section 11.01 of the Credit Agreement
and (iv) the second sentence of Section 11.10 of the Credit
Agreement, Section 7.07 of the Standby Purchase Agreement and
Section 5.08 of the Put Agreement (and any similar provisions in
any of the other Basic Documents), insofar as such sentence relates
to the subject matter jurisdiction of the United States District
Court for the Southern District of New York to adjudicate any
controversy related to any of the Basic Documents.
(D) We wish to point out that the obligations of the Obligors,
and the rights and remedies of the Administrative Agent, under the
Pledge Agreements may be subject to possible limitations upon the
exercise of remedial or procedural provisions contained in the
<PAGE> 108
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Pledge Agreements, provided that such limitations do not, in our
opinion (but subject to the other comments and qualifications set
forth in this opinion letter), make the remedies and procedures
that will be afforded to the Administrative Agent and the Lenders
inadequate for the practical realization of the substantive
benefits purported to be provided to the Administrative Agent and
the Lenders by the Pledge Agreements.
(E) With respect to our opinions in paragraphs 2, 3 and 4
above, we express no opinion as to the creation, perfection or
priority of any security interest in (or other lien on) any portion
of the Collateral (as defined in the Pledge Agreements) (i) to the
extent that, pursuant to Section 9-104 of the UCC, Article 9 of the
UCC does not apply thereto or (ii) consisting of Uncertificated
Securities.
(F) We express no opinion as to the existence of, or the
right, title or interest of the Obligors in, to or under, any of
the Collateral (as defined in the Pledge Agreements).
(G) Except as expressly provided in paragraphs 2 through 4
above, we express no opinion as to the creation, perfection or
priority of any security interest in, or other lien on, the
Collateral (as defined in the Pledge Agreements).
(H) We invite your attention to the fact that an act to amend
Articles 8 and 9 of the New York Uniform Commercial Code was
introduced in the New York State Assembly on March 18, 1996
(Assembly Bill No. 9454) and in the New York State Senate on March
20, 1996 (Senate Bill No. 6571). This act (which was referred to
the Committee on Judiciary) would replace the current Article 8
(and certain related provisions of Article 9) with the version of
revised Article 8 adopted by the American Law Institute and the
National Conference of Commissioners on Uniform State Laws in 1994.
If enacted in the form proposed, this act would materially change
the opinions expressed in paragraphs 2, 3 and 4 above (insofar as
such opinions relate to Securities) were such opinions to be
rendered after such enactment.
The foregoing opinions are limited to matters involving the
Federal laws of the United States and the law of the State of New York, and we
do not express any opinion as to the laws of any other jurisdiction.
At the request of our client, this opinion letter is, pursuant
to Section 6.01(h) of the Credit Agreement, provided to you by us in our
capacity as special New York counsel to Chase and may not be relied upon by any
Person for any purpose other than in connection with the transactions
contemplated by the Credit Agreement without, in each instance, our prior
written consent.
Very truly yours,
WJM/TDB
<PAGE> 109
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Annex 1
DEFINED TERMS
"ADVERSE CLAIM" means an "adverse claim" within the meaning of
Section 8-302(2) of the UCC.
"CERTIFICATED SECURITY" means a "certificated security" within
the meaning of Section 8- 102(1)(a) of the UCC, other than a Clearing
Corporation Security.
"CLEARING CORPORATION" means a "clearing corporation" within
the meaning of Section 8-102(3) of the UCC.
"CLEARING CORPORATION SECURITY" means a Security that is
either (a) an Uncertificated Security that is (i) issued by an issuer organized
under the laws of the State of New York and (ii) registered in the name of a
Clearing Corporation or of a Custodian or the nominee of a Clearing Corporation
or such Custodian or (b) a "certificated security" (within the meaning of
Section 8- 102(1)(a) of the UCC) that is (i) held in the State of New York in
the custody of a Clearing Corporation or of a Custodian or the nominee of such
Clearing Corporation or such Custodian subject to the exclusive control of such
Clearing Corporation and (ii) in bearer form or indorsed in blank by an
appropriate Person or registered in the name of a Clearing Corporation or of a
Custodian or the nominee of such Clearing Corporation or such Custodian subject
to the exclusive control of such Clearing Corporation.
"CUSTODIAN" means a "custodian" within the meaning of Section
8-102(4) of the UCC.
"PROCEEDS" means "proceeds" within the meaning of Section
9-306(1) of the UCC.
"SECURITY" means a "security" as such term is defined in
Section 8-102(1)(c) of the UCC.
"UNCERTIFICATED SECURITY" means an "uncertificated security"
within the meaning of Section 8-102(1)(b) of the UCC.
<PAGE> 110
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EXHIBIT H to the
Credit Agreement
[Form of Confidentiality Agreement]
CONFIDENTIALITY AGREEMENT
[Date]
[Insert Name and
Address of Prospective
Participant or Assignee]
Re: Credit Agreement dated as of August 16, 1996 (as
modified and supplemented and in effect from time to
time, the "CREDIT AGREEMENT"), between SAF Funding
Corporation (the "COMPANY"), the lenders party
thereto and The Chase Manhattan Bank, as
Administrative Agent.
Dear Ladies and Gentlemen:
As a Lender party to the Credit Agreement, we have agreed with
the Company pursuant to Section 11.11 of the Credit Agreement to use reasonable
precautions to keep confidential, except as otherwise provided therein, all
non-public information identified by the Company as being confidential at the
time the same is delivered to us pursuant to the Credit Agreement.
As provided in said Section 11.11, we are permitted to provide
you, as a prospective [holder of a participation in the Loans (as defined in the
Credit Agreement)] [assignee Lender], with certain of such non-public
information subject to the execution and delivery by you, prior to receiving
such non-public information, of a Confidentiality Agreement in this form. Such
information will not be made available to you until your execution and return to
us of this Confidentiality Agreement.
Accordingly, in consideration of the foregoing, you agree (on
behalf of yourself and each of your affiliates, directors, officers, employees
and representatives and for the benefit of us and the Company) that (A) such
information will not be used by you except in connection with the proposed
[participation][assignment] mentioned above and (B) you shall use reasonable
precautions, in accordance with your customary procedures for handling
confidential information and in accordance with safe and sound banking
practices, to keep such information confidential, PROVIDED that nothing herein
shall limit the disclosure of any such information (i) after such information
shall have become public (other than through a violation of Section 11.11 of the
Credit Agreement), (ii) to the extent required by statute, rule, regulation or
judicial process, (iii) to your counsel or to counsel for any of the Lenders or
the Administrative Agent, (iv) to bank examiners (or any other regulatory
authority having jurisdiction over any Lender or the
<PAGE> 111
-102-
Administrative Agent), or to auditors or accountants, (v) to the Administrative
Agent or any other Lender (or to Chase Securities Inc.), (vi) in connection with
any litigation to which you or any one or more of the Lenders or the
Administrative Agent are a party, or in connection with the enforcement of
rights or remedies under the Credit Agreement or under any other Credit
Document, (vii) to a subsidiary or affiliate of yours as provided in Section
11.11(a) of the Credit Agreement or (viii) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) first executes and delivers to you a
Confidentiality Agreement substantially in the form hereof; PROVIDED, FURTHER,
that in no event shall you be obligated to return any materials furnished to you
pursuant to this Confidentiality Agreement.
If you are a prospective assignee, your obligations under this
Confidentiality Agreement shall be superseded by Section 11.11 of the Credit
Agreement on the date upon which you become a Lender under the Credit Agreement
pursuant to Section 11.05(b) thereof.
Please indicate your agreement to the foregoing by signing as
provided below the enclosed copy of this Confidentiality Agreement and returning
the same to us.
Very truly yours,
[INSERT NAME OF LENDER]
By_________________________
The foregoing is agreed to
as of the date of this letter.
[INSERT NAME OF PROSPECTIVE
PARTICIPANT OR ASSIGNEE]
By_________________________
<PAGE> 112
-103-
EXHIBIT I to the
Credit Agreement
[Form of Assignment and Acceptance]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement, dated as of August
16, 1996 (as modified and supplemented and in effect from time to time, the
"CREDIT AGREEMENT"), between SAF Funding Corporation, a Delaware, the lenders
named therein, and The Chase Manhattan Bank, as administrative agent for such
lenders. Terms defined in the Credit Agreement are used herein as defined
therein.
____________________ (the "ASSIGNOR") and ____________________
(the "ASSIGNEE") agree as follows:
1. The Assignor hereby irrevocably sells and assigns to the
Assignee without recourse to the Assignor, and the Assignee hereby irrevocably
purchases and assumes from the Assignor without recourse to the Assignor, as of
the Effective Date as set forth in Schedule 1 hereto (the "EFFECTIVE DATE"), an
interest (the "ASSIGNED INTEREST") in and to the Assignor's rights and
obligations under the Credit Agreement with respect to the Commitment and the
Loans, in a principal amount and percentage as set forth on Schedule 1.
2. The Assignor (i) makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement, any other
Credit Document or any other instrument or document furnished pursuant thereto,
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Credit Agreement, any other Credit Document or any other
instrument or document furnished pursuant thereto, other than that it has not
created any adverse claim upon the interest being assigned by it hereunder and
that such interest is free and clear of any such adverse claim; (ii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Company or any other obligation or the performance or
observance by the Company or any other obligor of any of their respective
obligations under the Credit Agreement or any other Credit Document or any other
instrument or document furnished pursuant hereto or thereto; and (iii) attaches
the Note(s) held by it and requests that the Administrative Agent exchange such
Note(s) for a new Note or Notes payable to the Assignor (if the Assignor has
retained any interest in the Assigned Facility) and a new Note or Notes payable
to the Assignee in the respective amounts which reflect the assignment being
made hereby (and after giving effect to any other assignments which have become
effective on the Effective Date).
3. The Assignee (i) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (ii) confirms that it
has received a copy of the Credit Agreement, together with copies of the
financial statements referred to in Section 7.02 thereof, the financial
statements delivered pursuant to Section 8.01 thereof, if any, and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (iii) agrees
that it will, independently and without reliance upon the Assignor, the
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit
<PAGE> 113
-104-
Agreement, the other Credit Documents or any other instrument or document
furnished pursuant hereto or thereto; (iv) appoints and authorizes the
Administrative Agent to take such action as administrative agent on its behalf
and to exercise such powers and discretion under the Credit Agreement, the other
Credit Documents or any other instrument or document furnished pursuant hereto
or thereto as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are incidental thereto; and (v) agrees that it will
be bound by the provisions of the Credit Agreement and will perform in
accordance with its terms all the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Lender.
4. Following the execution of this Assignment and Acceptance,
it will be delivered to the Administrative Agent for acceptance by the
Administrative Agent pursuant to Section 11.05(b) of the Credit Agreement,
effective as of the Effective Date (which date shall not, unless otherwise
agreed to by the Administrative Agent, be earlier than five Business Days after
the date of such acceptance by the Administrative Agent).
5. Upon such acceptance, from and after the Effective Date,
the Administrative Agent shall make all payments in respect of the Assigned
Interest (including payments of principal, interest, fees and other amounts) to
the Assignee which accrue subsequent to the Effective Date.
6. From and after the Effective Date, (i) the Assignee shall
be a party to the Credit Agreement and, to the extent provided in this
Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and under the other Credit Documents and shall be bound by the
provisions thereof and (ii) the Assignor shall, to the extent provided in this
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Credit Agreement except as provided in Section 11.06 of
the Credit Agreement.
7. This Assignment and Acceptance shall be governed by and
construed in accordance with the law of the State of New York.
8. This Assignment and Acceptance may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Assignment and
Acceptance by signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment and Acceptance to be executed as of the date first above written by
their respective duly authorized officers on Schedule 1 hereto.
<PAGE> 114
-105-
Schedule 1 to
Assignment and Acceptance
relating to the Credit Agreement,
dated as of August 16, 1996,
between SAF Funding Corporation,
the lenders named therein and
The Chase Manhattan Bank, as administrative agent for the Lenders
(in such capacity, the "ADMINISTRATIVE AGENT")
Name of Assignor:
Name of Assignee:
Effective Date of Assignment:
Principal Percentage
AMOUNT ASSIGNED ASSIGNED
- -------------------------------------------------------------
[ASSIGNEE] [ASSIGNOR]
By:___________________________ By:__________________________
Title: Title:
[Consented to and] Accepted:
THE CHASE MANHATTAN BANK, as
Administrative Agent
By:__________________________
Title:
[Consented to:
SAF FUNDING CORPORATION
By:__________________________
<PAGE> 115
-106-
Title:
STATE AUTOMOBILE MUTUAL
INSURANCE COMPANY
By:__________________________
Title:]
<PAGE> 1
10(BB)
PUT AGREEMENT
BETWEEN
STATE AUTOMOBILE MUTUAL INSURANCE COMPANY,
STATE AUTO FINANCIAL CORPORATION
AND
THE CHASE MANHATTAN BANK
DATED AUGUST 16, 1996
<PAGE> 2
EXHIBIT D
to Credit Agreement
************************************************************
STATE AUTOMOBILE MUTUAL INSURANCE COMPANY
STATE AUTO FINANCIAL CORPORATION
-----------------------------
PUT AGREEMENT
Dated as of August 16, 1996
------------------------------
THE CHASE MANHATTAN BANK,
as Administrative Agent
************************************************************
<PAGE> 3
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which
it is attached but is inserted for convenience of reference only.
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Definitions and Accounting Terms.................................................................... 1
1.02 Accounting Terms and Determinations.............................................................. 9
Section 2. Put................................................................................................. 10
2.01 Put.............................................................................................. 10
2.02 Purchase of Loans................................................................................ 11
2.03 Purchase of Pledged Stock........................................................................ 11
2.04 Obligations Unconditional........................................................................ 11
2.05 Reinstatement.................................................................................... 12
2.06 Payments......................................................................................... 13
2.07 U.S. Taxes....................................................................................... 13
Section 3. Representations and Warranties...................................................................... 14
3.01 Corporate Existence.............................................................................. 14
3.02 Financial Condition.............................................................................. 14
3.03 Litigation....................................................................................... 15
3.04 No Breach........................................................................................ 15
3.05 Action........................................................................................... 15
3.06 Approvals........................................................................................ 16
3.07 ERISA............................................................................................ 16
3.08 Taxes............................................................................................ 16
3.09 Investment Company Act........................................................................... 16
3.10 Public Utility Holding Company Act............................................................... 16
3.11 Material Agreements and Liens.................................................................... 16
3.12 Environmental Matters............................................................................ 17
3.13 Capitalization................................................................................... 17
3.14 Subsidiaries, Etc................................................................................ 17
3.15 True and Complete Disclosure..................................................................... 18
Section 4. Covenants of State Auto Mutual...................................................................... 19
4.01 Financial Statements Etc......................................................................... 19
4.02 Litigation....................................................................................... 22
4.03 Existence, Etc................................................................................... 22
4.04 Insurance........................................................................................ 23
4.05 Prohibition of Fundamental Changes............................................................... 23
4.06 Limitation on Liens.............................................................................. 24
4.07 Indebtedness..................................................................................... 25
4.08 Sale/Leaseback Transactions...................................................................... 26
4.09 Investments...................................................................................... 26
4.10 Certain Financial Covenants...................................................................... 27
4.11 NAIC Ratio....................................................................................... 27
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
4.12 Interest Rate Protection Agreements.............................................................. 27
4.13 Lines of Business................................................................................ 28
4.14 Ceded Reinsurance................................................................................ 28
4.15 Transactions with Affiliates..................................................................... 28
4.16 Modifications of Certain Documents............................................................... 29
4.17 Indemnity for Certain Costs...................................................................... 29
4.18 Delivery of Documents on the Closing Date........................................................ 29
4.19 Delivery of Documents on Each Borrowing Date..................................................... 30
4.20 Delivery of Documents in Connection with the Extension of the Commitment
Termination Date.............................................................................. 31
4.21 Consent to Assignment, etc....................................................................... 31
Section 5. Miscellaneous....................................................................................... 32
5.01 Waiver........................................................................................... 32
5.02 Notices.......................................................................................... 32
5.03 Expenses, Etc.................................................................................... 33
5.04 Amendments, Etc.................................................................................. 34
5.05 Successors and Assigns........................................................................... 34
5.06 Captions......................................................................................... 34
5.07 Counterparts..................................................................................... 34
5.08 Governing Law; Submission to Jurisdiction........................................................ 34
5.09 Waiver of Jury Trial............................................................................. 35
5.10 Treatment of Certain Information; Confidentiality................................................ 35
5.11 No Liability..................................................................................... 35
5.12 Further Assurances............................................................................... 36
5.13 Severability..................................................................................... 36
5.14 Third-Party Beneficiaries........................................................................ 36
</TABLE>
SCHEDULE I - Material Agreements and Liens
SCHEDULE II - Subsidiaries and Investments
SCHEDULE III - [Intentionally Omitted]
SCHEDULE IV - Equity Rights and Redemption Obligations
EXHIBIT A - Form of Put Notice
EXHIBIT B - Form of Opinion of Counsel to
the State Auto Obligors
<PAGE> 5
-4-
PUT AGREEMENT dated as of August 16, 1996, between:
STATE AUTOMOBILE MUTUAL INSURANCE COMPANY, a mutual insurance
company duly organized and validly existing under the laws of the State
of Ohio ("STATE AUTO MUTUAL");
STATE AUTO FINANCIAL CORPORATION, a corporation duly organized
and validly existing under the laws of the State of Ohio ("STATE AUTO
FINANCIAL" and, together with State Auto Mutual, the "STATE AUTO
OBLIGORS"); and
THE CHASE MANHATTAN BANK, a New York banking corporation, as
agent (in such capacity, together with its successors in such capacity,
the "ADMINISTRATIVE AGENT") for the Lenders party to the Credit
Agreement referred to below.
SAF Funding Corporation (the "COMPANY"), certain lenders party
thereto from time to time (the "LENDERS") and the Administrative Agent are
parties to a Credit Agreement dated as of August 16, 1996 (as modified and
supplemented and in effect from time to time, the "CREDIT AGREEMENT"),
providing, subject to the terms and conditions thereof, for loans to be made by
the Lenders to the Company in an aggregate principal amount not exceeding
$100,000,000. The proceeds of such loans are to be used by the Company to
purchase certain preferred stock of State Auto Financial pursuant to a Standby
Purchase Agreement, dated as of the date hereof, among the Company and State
Auto Financial (as modified and supplemented and in effect from time to time as
permitted hereby, the "STANDBY PURCHASE AGREEMENT").
To induce the Lenders to enter into the Credit Agreement and
to make loans thereunder and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. DEFINITIONS AND ACCOUNTING TERMS. Capitalized terms
used but not defined herein shall have the respective meanings, assigned to such
terms in the Credit Agreement. In addition, as used herein, the following terms
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Agreement in the singular to have the same meanings
when used in the plural and VICE VERSA):
"AFFILIATE" shall mean any Person that directly or indirectly
controls, or is under common control with, or is controlled by, State Auto
Mutual. As used in this definition, "CONTROL" (including, with its correlative
meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise), PROVIDED that, in any
event, any Person that owns directly or indirectly securities having 5% or more
of the voting power for the election of directors or other governing body of a
corporation or 5% or more of the partnership or other ownership interests of any
other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person. Notwithstanding the
foregoing, (a) no individual shall be an Affiliate solely by reason of his or
her being a director, officer or
<PAGE> 6
-5-
employee of State Auto Mutual or any of its Subsidiaries and (b) State Auto
Mutual and its Subsidiaries shall not be deemed to be Affiliates of one another.
"APPLICABLE INSURANCE REGULATORY AUTHORITY" shall mean, when
used with respect to any Insurance Entity, the insurance department or similar
administrative authority or agency located in the State in which such Insurance
Entity is domiciled.
"ASSUMED REINSURANCE" shall mean reinsurance assumed by any
Insurance Entity from another Person (other than from another Insurance Entity).
"CAPITAL EXPENDITURES" shall mean, for any period,
expenditures (including, without limitation, the aggregate amount of Capital
Lease Obligations incurred during such period) made by State Auto Mutual or any
of its Subsidiaries to acquire or construct fixed assets, plant and equipment
(including renewals, improvements and replacements, but excluding repairs)
during such period computed in accordance with GAAP.
"CEDED REINSURANCE" shall mean reinsurance ceded by any
Insurance Entity to any other Person (other than to another Insurance Entity),
other than Surplus Relief Reinsurance.
"ENVIRONMENTAL CLAIM" shall mean, with respect to any Person,
any written or oral notice, claim, demand or other communication (collectively,
a "CLAIM") by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other Property, personal injuries, fines or penalties
arising out of, based on or resulting from (a) the presence, or Release into the
environment, of any Hazardous Material at any location, whether or not owned by
such Person, or (b) circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law. The term "Environmental Claim" shall
include, without limitation, any claim by any governmental authority for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and any claim by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence of Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAWS" shall mean any and all present and future
Federal, state, local and foreign laws, rules or regulations, and any orders or
decrees, in each case as now or hereafter in effect, relating to the regulation
or protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or toxic or hazardous substances or wastes into the indoor or outdoor
environment, including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or toxic or
hazardous substances or wastes.
"EQUITY PUBLIC OFFERING" shall mean a public issuance or sale
by State Auto Mutual or any of its Material Subsidiaries after the Closing Date
pursuant to a registration statement filed under the Securities Act of 1933, as
amended, of any common stock.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"ERISA AFFILIATE" shall mean any corporation or trade or
business that is a member of any group of organizations (a) described in Section
414(b) or (c) of the Code of which State Auto Mutual
<PAGE> 7
-6-
is a member and (b) solely for purposes of potential liability under Section
302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created
under Section 302(f) of ERISA and Section 412(n) of the Code, described in
Section 414(m) or (o) of the Code of which State Auto Mutual is a member.
"GAAP" shall mean generally accepted accounting principles
applied on a basis consistent with those that, in accordance with the last
sentence of Section 1.02(a) hereof, are to be used in making the calculations
for purposes of determining compliance with this Agreement.
"HAZARDOUS MATERIAL" shall mean, collectively, (a) any
petroleum or petroleum products, flammable materials, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, and transformers or
other equipment that contain polychlorinated biphenyls ("PCB'S"), (b) any
chemicals or other materials or substances that are now or hereafter become
defined as or included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials", "extremely hazardous wastes", "restricted
hazardous wastes", "toxic substances", "toxic pollutants", "contaminants",
"pollutants" or words of similar import under any Environmental Law and (c) any
other chemical or other material or substance, exposure to which is now or
hereafter prohibited, limited or regulated under any Environmental Law.
"INDEBTEDNESS" shall mean, for any Person: (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of Property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such Property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of Property or services, other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the Property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) obligations of such
Person in respect of letters of credit or similar instruments issued or accepted
by banks and other financial institutions for account of such Person; (e)
Capital Lease Obligations of such Person; and (f) Indebtedness of others
Guaranteed by such Person; PROVIDED that Indebtedness shall not include (i)
obligations with respect to insurance policies, annuities, guaranteed investment
contracts and similar products underwritten by, or Reinsurance Agreements or
Retrocession Agreements entered into by, an Insurance Entity in the ordinary
course of its business and (ii) obligations with respect to Surplus Relief
Reinsurance ceded by an Insurance Entity.
"INSURANCE ENTITY" shall mean, collectively, State Auto Mutual
and the Subsidiaries of State Auto Mutual licensed to underwrite property and
casualty insurance.
"INTERCOMPANY POOLING ARRANGEMENT" shall mean the pooling
arrangement among State Auto Mutual, State Auto P&C and Milbank pursuant to
which (a) State Auto P&C cedes to State Auto Mutual all of its insurance
business, (b) Milbank cedes to State Auto Mutual its property and casualty
insurance business and (c) State Auto Mutual retains its property and casualty
insurance business, whereupon all such businesses are pooled and a portion
thereof is then ceded from State Auto Mutual to each of State Auto P&C and
Milbank and the balance thereof is retained by State Auto Mutual, as such
arrangement may be modified and supplemented and in effect from time to time.
"INTEREST RATE PROTECTION AGREEMENT" shall mean, for any
Person, an interest rate swap, cap or collar agreement or similar arrangement
between such Person and one or more financial institutions providing for the
transfer or mitigation of interest risks either generally or under specific
contingencies. For purposes hereof, the "CREDIT EXPOSURE" at any time of any
Person under an Interest
<PAGE> 8
-7-
Rate Protection Agreement to which such Person is a party shall be determined at
such time in accordance with the standard methods of calculating credit exposure
under similar arrangements as prescribed from time to time by the Administrative
Agent, taking into account potential interest rate movements and the respective
termination provisions and notional principal amount and term of such Interest
Rate Protection Agreement.
"INVESTMENT" shall mean, for any Person: (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of any
securities at a time when such securities are not owned by the Person entering
into such sale); (b) the making of any deposit with, or advance, loan or other
extension of credit or capital contribution to, any other Person (including the
purchase of Property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such Property to such Person), but
excluding any such advance, loan or extension of credit having a term not
exceeding 90 days arising in connection with the sale of inventory or supplies
by such Person in the ordinary course of business; (c) the entering into of any
Guarantee of, or other contingent obligation with respect to, Indebtedness or
other liability of any other Person and (without duplication) any amount
committed to be advanced, lent or extended to such Person; or (d) the entering
into of any Interest Rate Protection Agreement.
"LICENSE" shall have the meaning assigned to such term in
Section 3.17 hereof.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect
on (a) the Property, business, operations, financial condition, prospects,
liabilities or capitalization of State Auto Mutual and its Subsidiaries taken as
a whole, (b) the ability of State Auto Mutual to perform its obligations under
this Agreement, (c) the validity or enforceability of any of the Basic Documents
or (d) the rights and remedies of the Lenders and the Administrative Agent under
any of the Basic Documents.
"MATERIAL SUBSIDIARY" shall mean, as at any time, any of State
Auto Financial, State Auto P&C, Milbank, State Auto National Insurance Company,
State Auto Life Insurance Company, and any other Subsidiary of State Auto Mutual
that holds, directly or indirectly, more than 5% of the consolidated assets of
State Auto Mutual and its Subsidiaries at such time or that accounts for more
than 5% of the consolidated revenues of State Auto Mutual and its Subsidiaries
at such time.
"MILBANK" shall mean Milbank Insurance Company, a South Dakota
domiciled property and casualty insurance company.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined
as such in Section 3(37) of ERISA to which contributions have been made by State
Auto Mutual or any ERISA Affiliate and that is covered by Title IV of ERISA.
"NAIC" shall mean the National Association of Insurance
Commissioners and any successor thereto.
"NET AVAILABLE PROCEEDS" shall mean, with respect to any
Equity Public Offering, the aggregate amount of all cash received by State Auto
Mutual and its Material Subsidiaries in respect of such Equity Public Offering
net of reasonable expenses incurred by State Auto Mutual and its Material
Subsidiaries in connection therewith.
"OBLIGATIONS" shall have the meaning assigned to such term in
Section 2.04 hereof.
<PAGE> 9
-8-
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
"PLAN" shall mean an employee benefit or other plan
established or maintained by State Auto Mutual or any ERISA Affiliate and that
is covered by Title IV of ERISA, other than a Multiemployer Plan.
"PLEDGED STOCK" shall mean the Preferred Stock pledged
pursuant to the Company Pledge Agreement to the Administrative Agent for the
benefit of the Lenders and all related rights in connection therewith.
"PREMIUM TO SURPLUS RATIO" shall mean, with respect to any
Person as at any date of determination thereof, the ratio (determined with
respect to such Person and its Subsidiaries in accordance with SAP) of (a) net
premiums written during the four consecutive calendar quarters ending on or most
recently ended prior to such date of determination to (b) Statutory Surplus as
at the last day of the calendar quarter ending on or most recently ended prior
to such date of determination.
"PUT EVENT" shall mean one or more of the following events
shall have occurred and be continuing:
(a) an Event of Default;
(b) either State Auto Obligor shall default in the payment
when due of any amount payable by it hereunder or State Auto Financial
shall default in the payment when due of any amount payable by it under
the Standby Purchase Agreement;
(c) State Auto Mutual or any of its Material Subsidiaries
shall default in the payment when due of any principal of or interest
on any of its other Indebtedness aggregating $5,000,000 or more; or any
event specified in any note, agreement, indenture or other document
evidencing or relating to any such Indebtedness shall occur if the
effect of such event is to cause, or (with the giving of any notice or
the lapse of time or both) to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, such Indebtedness to become due, or to be prepaid in
full (whether by redemption, purchase, offer to purchase or otherwise),
prior to its stated maturity or to have the interest rate thereon reset
to a level so that securities evidencing such Indebtedness trade at a
level specified in relation to the par value thereof; or State Auto
Mutual or any of its Material Subsidiaries shall default in the payment
when due of any amount aggregating $10,000,000 or more under any
Interest Rate Protection Agreement; or State Auto Mutual or any of its
Material Subsidiaries shall default under any Interest Rate Protection
Agreement if the effect of such default is to cause, or (with the
giving of any notice or the lapse of time or both) to permit,
termination or liquidation payment or payments by State Auto Mutual or
any of its Material Subsidiaries aggregating $5,000,000 or more to
become due;
(d) any representation, warranty or certification made or
deemed made herein or in any other Basic Document (or in any
modification or supplement hereto or thereto) by either State Auto
Obligor party thereto, or any certificate furnished to any Lender or
the Administrative Agent pursuant to the provisions hereof or thereof,
shall prove to have been false or misleading as of the time made or
furnished in any material respect;
<PAGE> 10
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(e) State Auto Mutual shall default in the performance of any
of its obligations under any of Sections 4.05 through 4.09 or 4.12
through 4.17 hereof; State Auto Financial shall default in the
performance of any of its obligations under the Standby Purchase
Agreement; or either State Auto Obligor shall default in the
performance of any of its other obligations under this Agreement and
such default shall continue unremedied for a period of 30 or more days
after the occurrence of such default;
(f) State Auto Mutual or any of its Material Subsidiaries
shall admit in writing its inability to, or be generally unable to, pay
its debts as such debts become due;
(g) State Auto Mutual or any of its Material Subsidiaries
shall (i) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee, examiner or liquidator
of itself or of all or a substantial part of its Property, (ii) make a
general assignment for the benefit of its creditors, (iii) commence a
voluntary case under the Bankruptcy Code, (iv) file a petition seeking
to take advantage of any other law relating to bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement or winding-up, or
composition or readjustment of debts, (v) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any petition
filed against it in an involuntary case under the Bankruptcy Code or
(vi) take any corporate action for the purpose of effecting any of the
foregoing;
(h) a proceeding or case shall be commenced, without the
application or consent of State Auto Mutual or any of its Material
Subsidiaries, in any court of competent jurisdiction, seeking (i) its
reorganization, liquidation, dissolution, arrangement or winding-up, or
the composition or readjustment of its debts, (ii) the appointment of a
receiver, custodian, trustee, examiner, liquidator or the like of State
Auto Mutual or such Material Subsidiary or of all or any substantial
part of its Property or (iii) similar relief in respect of State Auto
Mutual or such Material Subsidiary under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any
of the foregoing shall be entered and continue unstayed and in effect,
for a period of 60 or more days; or an order for relief against State
Auto Mutual or such Material Subsidiary shall be entered in an
involuntary case under the Bankruptcy Code;
(i) any Applicable Insurance Regulatory Authority shall
appoint a rehabilitator, receiver, custodian, trustee, conservator or
liquidator or the like (collectively, a "CONSERVATOR") for any
Insurance Entity, or cause possession of all or any substantial portion
of the property of any Insurance Entity to be taken by any conservator
(or any Insurance Regulatory Authority shall commence any action to
effect any of the foregoing);
(j) a final judgment or judgments for the payment of money of
$10,000,000 or more in the aggregate (exclusive of judgment amounts
fully covered by insurance where the insurer has admitted liability in
respect of such judgment) or of $25,000,000 or more in the aggregate
(regardless of insurance coverage) shall be rendered by one or more
courts, administrative tribunals or other bodies having jurisdiction
against State Auto Mutual or any of its Subsidiaries and the same shall
not be discharged (or provision shall not be made for such discharge),
or a stay of execution thereof shall not be procured, within 30 days
from the date of entry thereof and State Auto Mutual or the relevant
Material Subsidiary shall not, within said period of 30 days, or such
longer period during which execution of the same shall have been
stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal;
<PAGE> 11
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(k) an event or condition specified in Section 4.01(j) hereof
shall occur or exist with respect to any Plan or Multiemployer Plan
and, as a result of such event or condition, together with all other
such events or conditions, State Auto Mutual or any ERISA Affiliate
shall incur or in the opinion of the Majority Lenders shall be
reasonably likely to incur a liability to a Plan, a Multiemployer Plan
or the PBGC (or any combination of the foregoing) that, in the
determination of the Majority Lenders, would (either individually or in
the aggregate) have a Material Adverse Effect;
(l) a reasonable basis shall exist for the assertion against
State Auto Mutual or any of its Subsidiaries, or any predecessor in
interest of State Auto Mutual or any of its Subsidiaries or Affiliates,
of (or there shall have been asserted against State Auto Mutual or any
of its Subsidiaries) an Environmental Claim that, in the judgment of
the Majority Lenders is reasonably likely to be determined adversely to
State Auto Mutual or any of its Subsidiaries, and the amount thereof
(either individually or in the aggregate) is reasonably likely to have
a Material Adverse Effect (insofar as such amount is payable by State
Auto Mutual or any of its Subsidiaries but after deducting any portion
thereof that is reasonably expected to be paid by other creditworthy
Persons jointly and severally liable therefor);
(m) during any period of (1) 12 consecutive months if no Loans
are outstanding or (2) 25 consecutive months if any Loans are
outstanding, a majority of the Board of Directors of State Auto
Financial or State Auto P&C, as the case may be, shall no longer be
composed of individuals (i) who were members of said Board on the first
day of such period, (ii) whose election or nomination to said Board was
approved by individuals referred to in clause (i) above constituting at
the time of such election or nomination at least a majority of said
Board or (iii) whose election or nomination to said Board was approved
by individuals referred to in clauses (i) and (ii) above constituting
at the time of such election or nomination at least a majority of said
Board;
(n) except for expiration in accordance with its terms, any
material provision of this Agreement or the Standby Purchase Agreement
shall for whatever reason be terminated or cease to be in full force
and effect without the consent of the Lenders as specified in Section
10.09 of the Credit Agreement, or the validity or enforceability
thereof shall be contested by either State Auto Obligor;
(o) any "person" or "group" of "persons" (within the meaning
of Section 13(d) of the Securities and Exchange Act of 1934, as
amended) shall have the power, directly or indirectly, to vote or
direct the voting of a greater number of the voting capital stock
issued by State Auto Financial than State Auto Mutual; or State Auto
Financial shall fail to own and control, beneficially (free and clear
of all Liens), all of the capital stock issued by State Auto P&C (in
each case irrespective of whether or not at the time securities or
other ownership interests issued by State Auto Financial or State Auto
P&C, as the case may be, or any other class or classes might have
voting power by reason of the happening of any contingency); or
(p) the rating published by A.M. Best & Co. for (i) State Auto
Mutual shall be less than (x) "A", at any time prior to the date of the
occurrence of the catastrophe relating to the initial Loans under the
Credit Agreement, (y) "B", at any time during the period commencing on
the first anniversary of the date of the occurrence of such catastrophe
to but excluding the fourth anniversary thereof, and (z) "A-", at any
time thereafter, or (ii) State Auto P&C shall be less than "A" at any
time prior to the date of the occurrence of such catastrophe.
<PAGE> 12
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"PUT NOTICE" shall mean an instrument executed by the
Administrative Agent substantially in the form of Exhibit A hereto.
"PUT PURCHASE DATE" shall mean the date specified in a Put
Notice as the date on which State Auto Mutual shall purchase all of the Loans or
the Pledged Stock, as specified therein.
"REINSURANCE AGREEMENT" shall mean any agreement, contract,
treaty or other arrangement providing for Ceded Reinsurance by any Insurance
Entity or any Subsidiary of such Insurance Entity.
"RELEASE" shall mean any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, including, without limitation,
the movement of Hazardous Materials through ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata.
"RETROCESSION AGREEMENT" shall mean any agreement, contract,
treaty or other arrangement (other than Surplus Relief Reinsurance) whereby any
Insurance Entity or any Subsidiary of such Insurance Entity cedes reinsurance to
other insurers (other than to another Insurance Entity or any of its
Subsidiaries).
"RISK-BASED CAPITAL RATIO" shall mean, with respect to any
Person as at any date of determination thereof, the ratio of (a) Total Adjusted
Capital (as defined by the NAIC) for such Person as at such date of
determination to (b) Authorized Control Level Risk-Based Capital (as defined by
the NAIC) for such Person as at such date of determination.
"SAP" shall mean, with respect to any Insurance Entity, the
accounting procedures and practices prescribed or permitted by the Applicable
Insurance Regulatory Authority, applied on a basis consistent with those that,
in accordance with the last sentence of Section 1.02(a) hereof, are to be used
in making the calculations for purposes of determining compliance with this
Agreement.
"STATE AUTO P&C" shall mean State Auto Property and Casualty
Insurance Company, a South Carolina corporation.
"STATUTORY STATEMENT" shall mean, as to any Insurance Entity,
a statement of the condition and affairs of such Insurance Entity, prepared in
accordance with statutory accounting practices required or permitted by the
Applicable Insurance Regulatory Authority, and filed with the Applicable
Insurance Regulatory Authority.
"STATUTORY SURPLUS" shall mean, as at any date for any
Insurance Entity, the aggregate amount of surplus as regards policyholders
(determined without duplication in accordance with SAP) of such Insurance
Entity.
"SURPLUS RELIEF REINSURANCE" shall mean any transaction in
which any Insurance Entity or any Subsidiary of such Insurance Entity cedes
business under a reinsurance agreement that would be considered a
"financing-type" reinsurance agreement as determined by the independent
certified public accountants of State Auto Mutual in accordance with principles
published by the Financial Accounting Standards Board or the Second Edition of
the AICPA Audit Guide for Stock Life Insurance Companies (pp. 91-92), as the
same may be revised from time to time.
<PAGE> 13
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"TAX SHARING AGREEMENT" shall mean any tax sharing or
allocation agreement to which State Auto Mutual or any of its Subsidiaries is a
party and all tax indemnity agreements as to which State Auto Mutual or any of
its Subsidiaries is the beneficiary or obligor.
"WHOLLY OWNED SUBSIDIARY" shall mean, with respect to any
Person, any corporation, partnership or other entity of which all of the equity
securities or other ownership interests (other than, in the case of a
corporation, directors' qualifying shares) are directly or indirectly owned or
controlled by such Person or one or more Wholly Owned Subsidiaries of such
Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person.
1.02 ACCOUNTING TERMS AND DETERMINATIONS.
(a) Except as otherwise expressly provided herein, all
accounting terms used herein shall be interpreted, and all financial statements
and certificates and reports as to financial matters required to be delivered to
the Administrative Agent hereunder shall (unless otherwise disclosed to the
Administrative Agent in writing at the time of delivery thereof in the manner
described in subsection (b) below) be prepared, in accordance with generally
accepted accounting principles or statutory accounting practices, as the case
may be, applied on a basis consistent with those used in the preparation of the
latest financial statements furnished to the Administrative Agent hereunder
(which, prior to the delivery of the first financial statements under Section
4.01 hereof, shall mean the audited, or annual statutory, financial statements
as at December 31, 1995 referred to in Section 3.02 hereof). All calculations
made for the purposes of determining compliance with this Agreement shall
(except as otherwise expressly provided herein) be made by application of
generally accepted accounting principles or statutory accounting practices, as
the case may be, applied on a basis consistent with those used in the
preparation of the latest annual or quarterly financial statements furnished to
the Administrative Agent pursuant to Section 4.01 hereof (or, prior to the
delivery of the first financial statements under Section 4.01 hereof, used in
the preparation of the audited, or annual statutory, financial statements as at
December 31, 1995 referred to in Section 3.02 hereof) unless (i) State Auto
Mutual shall have objected to determining such compliance on such basis at the
time of delivery of such financial statements or (ii) the Majority Lenders
(through the Administrative Agent) shall so object in writing within 30 days
after delivery of such financial statements, in either of which events such
calculations shall be made on a basis consistent with those used in the
preparation of the latest financial statements as to which such objection shall
not have been made (which, if objection is made in respect of the first
financial statements delivered under Section 4.01 hereof, shall mean the
audited, or annual statutory, financial statements referred to in Section 3.02
hereof).
(b) State Auto Mutual shall deliver to the Administrative
Agent at the same time as the delivery of any annual or quarterly financial
statement under Section 4.01 hereof (i) a description in reasonable detail of
any material variation between the application of accounting principles, or
statutory accounting practices, employed in the preparation of such statement
and the application of accounting principles, or statutory accounting practices,
employed in the preparation of the next preceding annual or quarterly financial
statements as to which no objection has been made in accordance with the last
sentence of subsection (a) above and (ii) reasonable estimates of the difference
between such statements arising as a consequence thereof.
(c) To enable the ready and consistent determination of
compliance with the covenants set forth in Section 4 hereof, State Auto Mutual
will not change the last day of its fiscal year from December 31, or the last
days of the first three fiscal quarters in each of its fiscal years from March
31, June 30 and September 30 of each year, respectively.
<PAGE> 14
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Section 2. PUT.
2.01 PUT. At any time after the occurrence and during the
continuance of a Put Event, the Administrative Agent may (with the approval of
the Majority Lenders but not otherwise), by delivering to State Auto Mutual a
Put Notice, require State Auto Mutual to purchase (a) from each Lender, all (but
not less than all) of such Lender's Loans, Notes and Commitment or (b) from the
Administrative Agent, all (but not less than all) of the Pledged Stock. In the
event that a Put Event has occurred and the Administrative Agent (with the
consent of the Majority Lenders) has elected to deliver a Put Notice, it shall
first attempt to require State Auto Mutual to purchase the Pledged Stock;
PROVIDED that if the Administrative Agent shall not be able, promptly (and in
any event within 5 Business Days of any such election) after the occurrence of
such Put Event, to sell the Pledged Stock to State Auto Mutual as contemplated
hereby, it may deliver a Put Notice requiring the purchase of each Lender's
Loans, Notes and Commitments.
2.02 PURCHASE OF LOANS.
(a) If such Put Notice requires that State Auto Mutual
purchase each Lender's Loans, Notes and Commitment, then, on the Put Purchase
Date specified in such Put Notice (which Put Purchase Date shall be at least
three Business Days after the date of delivery of such Put Notice), (i) State
Auto Mutual shall purchase from each Lender, and each Lender shall sell, assign
and transfer to State Auto Mutual, all of such Lender's Loans, Notes and
Commitment, as specified in such Put Notice and (ii) State Auto Mutual shall pay
to the Administrative Agent for account of each Lender an aggregate amount equal
to the sum of (x) the aggregate outstanding principal amount of Loans of such
Lender PLUS (y) all accrued and unpaid interest thereon to the Put Purchase Date
PLUS (z) all other amounts then payable to such Lender under the Basic Documents
in respect thereof (including all amounts that would be payable under Section
5.05 of the Credit Agreement as if such portion of such Lender's Loans were
being prepaid on the Put Purchase Date) (such amounts to be determined by the
Administrative Agent and notified in writing by the Administrative Agent to
State Auto Mutual prior to such Put Purchase Date). Upon the occurrence of any
Put Event referred to in clause (g), (h) or (i) of the definition of such term
in Section 1.01 hereof, State Auto Mutual shall automatically and without any
action (including, without limitation the giving of notice) on the part of any
other Person be required to purchase the entire principal amount of the Loans
then outstanding.
(b) Such sale, assignment and transfer shall be without
recourse to each Lender and without representation and warranty by such Lender,
except that such Lender will represent and warrant to State Auto Mutual that, on
the Put Purchase Date, such Lender is the legal and beneficial owner of such
portion of such Lender's Loans, Notes and Commitment so sold, assigned and
transferred, free and clear of any adverse claim. Upon such sale, assignment and
transfer and to the extent thereof, State Auto Mutual shall have the
obligations, rights and benefits of a "Lender" under the Credit Agreement
holding the Commitment and Loans so sold, assigned and transferred and each
Lender shall be released from the Commitment so sold, assigned and transferred.
2.03 PURCHASE OF PLEDGED STOCK. If such Put Notice requires
that State Auto Mutual purchase the Pledged Stock, then, on the Put Purchase
Date specified in such Put Notice (which Put Purchase Date shall be at least
three Business Days after the date of delivery of such Put Notice), (a) State
Auto Mutual shall purchase from the Administrative Agent, and the Administrative
Agent shall sell, assign and transfer to State Auto Mutual, the Pledged Stock,
(b) State Auto Mutual shall pay to the Administrative Agent, for account of the
Lenders, an amount equal to the aggregate liquidation preference of such Pledged
Stock and all accrued but unpaid dividends thereon (such amount to be
<PAGE> 15
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determined by the Administrative Agent and notified in writing by the
Administrative Agent to State Auto Mutual prior to such Put Purchase Date) and
(c) the Administrative Agent shall apply such amount to the payment of the
Obligations owing to the Lenders under the Credit Documents.
2.04 OBLIGATIONS UNCONDITIONAL. The obligations of State Auto
Mutual under Sections 2.01, 2.02, 2.03 and 5.03 hereof are absolute,
unconditional and irrevocable, irrespective of the value, genuineness, validity,
regularity or enforceability of the obligations of the Company or any other
Person under the Credit Agreement, the Notes, the Pledge Agreements or any other
agreement or instrument referred to therein (collectively, the "OBLIGATIONS"),
or any substitution, release or exchange of any other guarantee of or security
for any of the Obligations, and, to the fullest extent permitted by applicable
law, irrespective of any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense available to State Auto
Mutual, it being the intent of this Section 2.04 that the obligations of State
Auto Mutual hereunder shall be absolute, unconditional and irrevocable under any
and all circumstances. Without limiting the generality of the foregoing, it is
agreed that the occurrence of any one or more of the following shall not alter
or impair the liability of State Auto Mutual hereunder which shall remain
absolute, unconditional and irrevocable as described above:
(a) at any time or from time to time, without notice to State
Auto Mutual, the time for any performance of or compliance with any of
the Obligations shall be extended, or such performance or compliance
shall be waived;
(b) any of the acts mentioned in any of the provisions of the
Credit Agreement, the Notes, the Pledge Agreements or any other
agreement or instrument referred to therein shall be done or omitted;
(c) the maturity of any of the Obligations shall be
accelerated, or any of the Obligations shall be modified, supplemented
or amended in any respect, or any right under this Agreement, the
Notes, the Pledge Agreements or any other agreement or instrument
referred to therein shall be waived or any guarantee of any of the
Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with; or
(d) any change in the financial condition (including, without
limitation, insolvency or bankruptcy) of the Company.
State Auto Mutual hereby expressly waives all of the defenses referred to above
and diligence, presentment, demand of payment, protest and all notices
whatsoever (other than the Put Notice), and any requirement that the
Administrative Agent or any Lender exhaust any right, power or remedy or proceed
against the Company under the Credit Agreement, the Notes, the Pledge Agreements
or any other agreement or instrument referred therein, or against any other
Person under any other guarantee of, or security for, any of the Obligations.
2.05 REINSTATEMENT. If for any reason any payment received by
the Administrative Agent in respect of any of the Obligations prior to the
consummation by State Auto Mutual of a purchase contemplated by Section 2.02 or
2.03 hereof is rescinded or must be otherwise restored by any Lender for any
reason, whether as a result of any proceedings in bankruptcy, insolvency or
reorganization or otherwise, following the consummation of such purchase, State
Auto shall purchase from such Lender, and such Lender shall sell, assign and
transfer to State Auto Mutual, all of the right, title and interest of such
Lender in and to the payment so rescinded or otherwise restored, and upon such
sale, assignment and transfer, State Auto Mutual shall pay to such Lender an
amount equal to the payment so rescinded or otherwise restored. State Auto
Mutual hereby agrees that it will indemnify the Administrative Agent and
<PAGE> 16
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such Lender on demand for all reasonable costs and expenses (including, without
limitation, fees of counsel) incurred by the Administrative Agent or such Lender
in connection with such rescission or restoration.
2.06 PAYMENTS.
(a) Except to the extent otherwise provided herein, all
payments to be made by State Auto Mutual under this Agreement shall be made in
Dollars, in immediately available funds, without deduction, set-off or
counterclaim, to the Administrative Agent at an account designated by the
Administrative Agent to State Auto Mutual in writing, not later than 1:00 p.m.
New York time on the date on which such payment shall become due (each such
payment made after such time on such due date to be deemed to have been made on
the next succeeding Business Day).
(b) The Administrative Agent may (but shall not be obligated
to) debit the amount of any such payment that is not made by such time to any
ordinary deposit account of State Auto Mutual with the Administrative Agent
(with notice to State Auto Mutual), PROVIDED that the Administrative Agent's
failure to give such notice shall not affect the validity thereof.
2.07 U.S. TAXES.
(a) State Auto Mutual agrees to pay to each Lender that is not
a U.S. Person such additional amounts as are necessary in order that the net
payment of any amount due to such non-U.S. Person hereunder after deduction for
or withholding in respect of any U.S. Taxes imposed with respect to such payment
(or in lieu thereof, payment of such U.S. Taxes by such non-U.S. Person), will
not be less than the amount stated herein to be then due and payable, PROVIDED
that the foregoing obligation to pay such additional amounts shall not apply:
(i) to any payment to any Lender hereunder unless such
Lender is, on the date hereof (or on the date it becomes a Lender as
provided in Section 11.05(b) of the Credit Agreement) and on the date
of any change in the Applicable Lending Office of such Lender, either
entitled to submit a Form 1001 (relating to such Lender and entitling
it to a complete exemption from withholding on all interest to be
received by it under the Credit Agreement in respect of the Loans) or
Form 4224 (relating to all interest to be received by such Lender under
the Credit Agreement in respect of the Loans), or
(ii) to any U.S. Taxes imposed solely by reason of the
failure by such non-U.S. Person to comply with applicable
certification, information, documentation or other reporting
requirements concerning the nationality, residence, identity or
connections with the United States of America of such non-U.S. Person
if such compliance is required by statute or regulation of the United
States of America as a precondition to relief or exemption from such
U.S. Taxes.
For the purposes of this Section 2.07(a), (w) "U.S. PERSON" shall mean a
citizen, national or resident of the United States of America, a corporation,
partnership or other entity created or organized in or under any laws of the
United States of America or any State thereof, or any estate or trust that is
subject to Federal income taxation regardless of the source of its income, (x)
"U.S. TAXES" shall mean any present or future tax, assessment or other charge or
levy imposed by or on behalf of the United States of America or any taxing
authority thereof or therein (but excluding any taxes imposed as a result of a
present or former connection between such non-U.S. Person or the Administrative
Agent and the United States of America or any taxing authority thereof or
therein (except a connection arising solely from such non-U.S. Person or the
Administrative Agent having executed, delivered or performed its obligations or
received a payment under or enforced this Agreement or the Notes), (y) "FORM
1001" shall mean
<PAGE> 17
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Form 1001 (Ownership, Exemption, or Reduced Rate Certificate) of the Department
of the Treasury of the United States of America and (z) "FORM 4224" shall mean
Form 4224 (Exemption from Withholding of Tax on Income Effectively Connected
with the Conduct of a Trade or Business in the United States) of the Department
of the Treasury of the United States of America (or in relation to either such
Form such successor and related forms as may from time to time be adopted by the
relevant taxing authorities of the United States of America to document a claim
to which such Form relates). Each of the Forms referred to in the foregoing
clauses (C) and (D) shall include such successor and related forms as may from
time to time be adopted by the relevant taxing authorities of the United States
of America to document a claim to which such Form relates.
(b) Within 30 days after paying any amount to the
Administrative Agent or any Lender from which it is required by law to make any
deduction or withholding, and within 30 days after it is required by law to
remit such deduction or withholding to any relevant taxing or other authority,
State Auto Mutual shall deliver to the Administrative Agent for delivery to such
non-U.S. Person evidence satisfactory to such Person of such deduction,
withholding or payment (as the case may be).
Section 3. REPRESENTATIONS AND WARRANTIES. Each State Auto
Obligor represents and warrants (with respect to itself and its Subsidiaries
only) to the Administrative Agent and the Lenders that:
3.01 CORPORATE EXISTENCE. Each of such State Auto Obligor and
its Material Subsidiaries: (a) is a corporation, partnership or other entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; (b) has all requisite corporate or other
power, and has all material governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now being or
as proposed to be conducted; and (c) is qualified to do business and is in good
standing in all jurisdictions in which the nature of the business conducted by
it makes such qualification necessary and where failure so to qualify could
(either individually or in the aggregate) have a Material Adverse Effect.
3.02 FINANCIAL CONDITION.
(a) State Auto Mutual has heretofore furnished to each of the
Lenders consolidated balance sheets of State Auto Financial and its Subsidiaries
as at December 31, 1995 and the related consolidated statements of income,
retained earnings and cash flows of State Auto Financial and its Subsidiaries
for the fiscal year ended on said date, with the opinion thereon of Ernst &
Young LLP, and the unaudited consolidated balance sheets of State Auto Financial
and its Subsidiaries as at March 31, 1996 and the related consolidated
statements of income, retained earnings and cash flows of State Auto Financial
and its Subsidiaries for the three-month period ended on such date. All such
financial statements present fairly in all material respects the consolidated
financial condition of State Auto Financial and its Subsidiaries as at said
dates and the consolidated results of their operations for the fiscal year and
three-month period ended on said dates (subject, in the case of such financial
statements as at March 31, 1996, to normal year-end audit adjustments), all in
accordance with generally accepted accounting principles and practices applied
on a consistent basis. None of State Auto Financial nor any of its Material
Subsidiaries has on the date hereof any material contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments, except as referred to or
reflected or provided for in said balance sheets as at said dates. Since March
31, 1996, there has been no material adverse change in the consolidated
financial condition, operations, business or prospects taken as a whole of State
Auto Financial and its Subsidiaries from that set forth in said financial
statements as at March 31, 1996.
<PAGE> 18
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(b) State Auto Mutual has heretofore furnished to each of the
Lenders the annual Statutory Statement of each Insurance Entity for the fiscal
year ended December 31, 1995, and the quarterly Statutory Statement of each
Insurance Entity for the fiscal quarter ended March 31, 1996, in each case as
filed with the Applicable Insurance Regulatory Authority. All such Statutory
Statements present fairly in all material respects the financial condition of
each Insurance Entity as at, and the results of operations for, the fiscal year
ended December 31, 1995, and fiscal quarter ended March 31, 1996, in accordance
with statutory accounting practices prescribed or permitted by the Applicable
Insurance Regulatory Authority. Since March 31, 1996, there has been no material
adverse change in the consolidated financial condition, operations, business or
prospects taken as a whole of State Auto Mutual from that set forth in said
Statutory Statement as at March 31, 1996.
3.03 LITIGATION. There are no legal or arbitral proceedings,
or any proceedings by or before any governmental or regulatory authority or
agency, now pending or (to the knowledge such State Auto Obligor) threatened
against State Auto Mutual or any of its Subsidiaries that, if adversely
determined could (either individually or in the aggregate) have a Material
Adverse Effect.
3.04 NO BREACH. None of the execution and delivery of this
Agreement and the other Basic Documents to which such State Auto Obligor is a
party, the consummation of the transactions herein and therein contemplated or
compliance with the terms and provisions hereof and thereof (including, without
limitation, issuance of the Preferred Stock) will conflict with or result in a
breach of, or require any consent under, the charter or by-laws (or equivalent
documents) of such State Auto Obligor, or any applicable law or regulation, or
any order, writ, injunction or decree of any court or governmental authority or
agency, or any agreement or instrument to which State Auto Mutual or any of its
Subsidiaries is a party or by which any of them or any of their Property is
bound or to which any of them is subject, or constitute a default under any such
agreement or instrument, or result in the creation or imposition of any Lien
upon any Property of State Auto Mutual or any of its Subsidiaries pursuant to
the terms of any such agreement or instrument.
3.05 ACTION. Such State Auto Obligor has all necessary
corporate power, authority and legal right to execute, deliver and perform its
obligations under each of the Basic Documents to which it is a party and, in the
case of State Auto Financial, to issue the Preferred Stock; the execution,
delivery and performance by such State Auto Obligor of each of the Basic
Documents to which it is a party (and, in the case of State Auto Financial, the
issuance of the Preferred Stock) have been duly authorized by all necessary
corporate action on its part (including, without limitation, any required
shareholder approvals); and this Agreement has been duly and validly executed
and delivered by such State Auto Obligor and constitutes, and each of the other
Basic Documents to which such State Auto Obligor is a party when executed and
delivered will constitute, its legal, valid and binding obligation, enforceable
against such State Auto Obligor in accordance with its terms, except as such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or similar laws of general applicability affecting the enforcement of
creditors' rights and (b) the application of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
3.06 APPROVALS. No authorizations, approvals or consents of,
and no filings or registrations with, any governmental or regulatory authority
or agency, or any securities exchange (other than any authorizations, approvals,
consents, filings and registrations heretofore duly made or obtained and in full
force and effect), are necessary for the execution, delivery or performance by
either State Auto Obligor of this Agreement or any of the other Basic Documents
to which it is a party (or, in the case of State Auto Financial, for the
issuance of the Preferred Stock) or for the legality, validity or enforceability
hereof or thereof.
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3.07 ERISA. Each Plan, and, to the knowledge of the such State
Auto Obligor, each Multiemployer Plan, is in compliance in all material respects
with, and has been administered in all material respects in compliance with, the
applicable provisions of ERISA, the Code and any other Federal or state law, and
no event or condition has occurred and is continuing as to which State Auto
Mutual would be under an obligation to furnish a report to the Administrative
Agent under Section 4.01(j) hereof.
3.08 TAXES. State Auto Mutual and its Subsidiaries are members
of an affiliated group of corporations filing consolidated returns for Federal
income tax purposes, of which State Auto Mutual is the "common parent" (within
the meaning of Section 1504 of the Code) of such group. State Auto Mutual and
its Material Subsidiaries have filed all Federal income tax returns and all
other material tax returns that are required to be filed by them and have paid
all taxes due pursuant to such returns or pursuant to any assessment received by
State Auto Mutual or any of its Material Subsidiaries. The charges, accruals and
reserves on the books of State Auto Mutual and its Material Subsidiaries in
respect of taxes and other governmental charges are, in the opinion of State
Auto Mutual, adequate. State Auto Mutual has not given or been requested to give
a waiver of the statute of limitations relating to the payment of any Federal,
state, local and foreign taxes or other impositions.
3.09 INVESTMENT COMPANY ACT. Neither State Auto Mutual nor
any of its Subsidiaries is an "investment company", or a company "controlled" by
an "investment company", within the meaning of the Investment Company Act of
1940, as amended.
3.10 PUBLIC UTILITY HOLDING COMPANY ACT. Neither State Auto
Mutual nor any of its Subsidiaries is a "holding company", or an "affiliate" of
a "holding company" or a "subsidiary company" of a "holding company", within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
3.11 MATERIAL AGREEMENTS AND LIENS.
(a) Part A of Schedule I hereto is a complete and correct list
of each credit agreement, loan agreement, indenture, purchase agreement,
guarantee, letter of credit or other arrangement providing for or otherwise
relating to any Indebtedness or any extension of credit (or commitment for any
extension of credit) to, or guarantee by, State Auto Mutual or any of its
Subsidiaries, outstanding on the date hereof the aggregate principal or face
amount of which equals or exceeds (or may equal or exceed) $5,000,000, and the
aggregate principal or face amount outstanding or that may become outstanding
under each such arrangement is correctly described in Part A of said Schedule I.
(b) Part B of Schedule I hereto is a complete and correct list
of each Lien securing Indebtedness of any Person outstanding on the date hereof
the aggregate principal or face amount of which equals or exceeds (or may equal
or exceed) $5,000,000 and covering any Property of State Auto Mutual or any of
its Subsidiaries, and the aggregate Indebtedness secured (or that may be
secured) by each such Lien and the Property covered by each such Lien is
correctly described in Part B of said Schedule I.
3.12 ENVIRONMENTAL MATTERS. Each of State Auto Mutual and its
Subsidiaries has obtained all environmental, health and safety permits, licenses
and other authorizations required under all Environmental Laws to carry on its
business as now being or as proposed to be conducted, except to the extent
failure to have any such permit, license or authorization would not (either
individually or in the aggregate) have a Material Adverse Effect. Each of such
permits, licenses and authorizations is in full
<PAGE> 20
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force and effect and each of State Auto Mutual and its Subsidiaries is in
compliance with the terms and conditions thereof, and is also in compliance with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in any applicable
Environmental Law or in any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
thereunder, except to the extent failure to comply therewith would not (either
individually or in the aggregate) have a Material Adverse Effect.
3.13 CAPITALIZATION. The authorized capital stock of State
Auto Financial consists, on the date hereof, of an aggregate of 35,000,000
shares consisting of (a) 30,000,000 shares of common stock, no par value, of
which 18,086,863 shares are duly and validly issued and outstanding, each of
which shares is fully paid and nonassessable, (b) 2,500,000 shares of Class A
Preferred Stock, no par value, none of which shares are issued and outstanding
and (c) 2,500,000 shares of Class B Preferred Stock, no par value, none of which
shares are issued and outstanding. As of the date hereof, 67% of such issued and
outstanding shares of common stock are owned beneficially and of record by State
Auto Mutual. As of the date hereof, (i) except for this Agreement and the
Standby Purchase Agreement and as set forth in Part A of Schedule IV hereto,
there are no outstanding Equity Rights with respect to State Auto Financial and
(ii) except as set forth in Part B of Schedule IV hereto, there are no
outstanding obligations of State Auto Financial or any of its Subsidiaries to
repurchase, redeem, or otherwise acquire any shares of capital stock of State
Auto Financial nor are there any outstanding obligations of State Auto Financial
or any of its Subsidiaries to make payments to any Person, such as "phantom
stock" payments, where the amount thereof is calculated with reference to the
fair market value or equity value of State Auto Financial or any of its
Subsidiaries.
3.14 SUBSIDIARIES, ETC.
(a) Set forth in Part A of Schedule II hereto is a complete
and correct list of all Subsidiaries of State Auto Mutual on the date hereof and
a specification of which of such Subsidiaries are Insurance Entities and which
are Material Subsidiaries.
(b) Set forth in Part B of Schedule II hereto is a complete
and correct list of all Investments (other than (i) Investments disclosed in
Part A of said Schedule II hereto and any other Investments existing as of the
date hereof permitted under Section 4.09 hereof and (ii) Guarantees of
Indebtedness the aggregate principal or face amount of which Indebtedness is
less than $5,000,000) held by State Auto Mutual or any of its Subsidiaries in
any Person on the date hereof and, for each such Investment, (i) the identity of
the Person or Persons holding such Investment and (ii) the nature of such
Investment. Except as disclosed in Part B of Schedule II hereto, each of State
Auto Mutual and its Subsidiaries owns, free and clear of all Liens, all such
Investments.
3.15 TRUE AND COMPLETE DISCLOSURE. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of the State Auto Obligors to the Administrative Agent or any Lender in
connection with the negotiation, preparation or delivery of this Agreement and
the other Basic Documents or included herein or therein or delivered pursuant
hereto or thereto, when taken as a whole do not contain any untrue statement of
material fact or omit to state any material fact necessary to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading. All written information furnished after the date
hereof by State Auto Mutual and its Subsidiaries to the Administrative Agent and
the Lenders in connection with this Agreement and the other Basic Documents and
the transactions contemplated hereby and thereby will be true, complete and
accurate in every material respect, or (in the case of projections) based on
reasonable estimates, on the date as of which such information is stated or
certified. There is no fact known to either State Auto Obligor that could have a
Material Adverse Effect that has not been disclosed herein, in the other Basic
Documents or in a report, financial statement, exhibit, schedule, disclosure
letter or other
<PAGE> 21
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writing furnished to the Administrative Agent for use in connection with the
transactions contemplated hereby or thereby.
3.16 NO RELIANCE. State Auto Mutual has made, independently
and without reliance upon the Administrative Agent or any Lender, and based on
such documents and information as it has deemed appropriate, its own decision to
enter into this Agreement and has made (and will continue to make),
independently and without reliance upon the Administrative Agent or any Lender,
and based on such documents and information as it has deemed appropriate (or
shall deem appropriate at the time), its own legal, credit and tax analysis of
the transactions contemplated hereby.
3.17 INSURANCE LICENSES. Schedule T to the most recent
Statutory Statement of each Insurance Entity described in Section 3.02(b) hereof
lists, as of the date hereof, all of the jurisdictions in which each of the
Insurance Entities holds active licenses (including, without limitation,
licenses or certificates of authority from Applicable Insurance Regulatory
Authorities), permits or authorizations to transact insurance and reinsurance
business or to act as an insurance agent or broker (collectively, the
"LICENSES"). Each Insurance Entity is in compliance in all material respects
with each license held by it. No License (to the extent material) is the subject
of a proceeding for suspension or revocation or any similar proceedings, there
is no sustainable basis for such a suspension or revocation, and to the
knowledge of each State Auto Obligor no such suspension or revocation has been
threatened by any licensing authority except in any such case where such
proceedings would not have a Material Adverse Effect.
Section 4. COVENANTS OF STATE AUTO MUTUAL. State Auto Mutual
covenants and agrees with the Administrative Agent that, so long as any
Obligations are outstanding or any Commitments are in effect:
4.01 FINANCIAL STATEMENTS ETC. State Auto Mutual shall
deliver to the Administrative Agent (with sufficient copies for each of the
Lenders):
(a) as soon as available and in any event within 60 days after
the end of each quarterly fiscal period of each fiscal year of State
Auto Financial, consolidated statements of income, retained earnings
and cash flows of State Auto Financial and its Subsidiaries for such
period and for the period from the beginning of the respective fiscal
year to the end of such period, and the related consolidated balance
sheets of State Auto Financial and its Subsidiaries as at the end of
such period, setting forth in each case in comparative form the
corresponding consolidated figures for the corresponding periods in the
preceding fiscal year (except that, in the case of balance sheets, such
comparison shall be to the last day of the prior fiscal year),
accompanied by a certificate of a senior financial officer of State
Auto Financial, which certificate shall state that said consolidated
financial statements present fairly in all material respects the
consolidated financial condition and results of operations of State
Auto Financial and its Subsidiaries in accordance with generally
accepted accounting principles, consistently applied, as at the end of,
and for, such period (subject to normal year-end audit adjustments);
(b) as soon as available and in any event within 90 days after
the end of each fiscal year of State Auto Financial, consolidated
statements of income, retained earnings and cash flows of State Auto
Financial and its Subsidiaries for such fiscal year and the related
consolidated balance sheets of State Auto Financial and its
Subsidiaries as at the end of such fiscal year, setting forth in each
case in comparative form the corresponding consolidated figures for the
preceding fiscal year, and accompanied by an opinion thereon of
independent certified public accountants of
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recognized national standing, which opinion shall state that said
consolidated financial statements present fairly in all material
respects the consolidated financial condition and results of
operations of State Auto Financial and its Subsidiaries as at the end
of, and for, such fiscal year in accordance with generally accepted
accounting principles;
(c) promptly after filing with the Applicable Insurance
Regulatory Authority and in any event within five Business Days after
the date on which each Insurance Entity is required (after giving
effect to any extensions) to file with the Applicable Insurance
Regulatory Authority its quarterly Statutory Statement for each of the
first three quarterly fiscal periods of each fiscal year of such
Insurance Entity, such quarterly Statutory Statement of such Insurance
Entity for such quarterly fiscal period, together with the opinion
thereon of a senior financial officer of such Insurance Entity stating
that such Statutory Statement presents the financial condition of such
Insurance Entity for such quarterly fiscal period in accordance with
statutory accounting practices required or permitted by the Applicable
Insurance Regulatory Authority;
(d) promptly after filing with the Applicable Insurance
Regulatory Authority and in any event within five Business Days after
the date on which each Insurance Entity is required (after giving
effect to any extensions) to file with the Applicable Insurance
Regulatory Authority its annual Statutory Statement, the annual
Statutory Statement of such Insurance Entity for such year, together
with (i) the opinion thereon of a senior financial officer of such
Insurance Entity stating that said annual Statutory Statement presents
the financial condition of such Insurance Entity for such fiscal year
in accordance with statutory accounting practices required or
permitted by the Applicable Insurance Regulatory Authority and (ii) a
certificate of a valuation actuary affirming the adequacy of reserves
taken by such Insurance Entity in respect of future policyholder
benefits as at the end of such fiscal year (as shown on such Statutory
Statement);
(e) within 180 days after the end of each fiscal year of each
Insurance Entity, the report of Ernst & Young LLP (or other independent
certified public accountants of recognized national standing) on the
annual Statutory Statements delivered pursuant to Section 4.01(d)
hereof;
(f) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, that
State Auto Mutual or any of its Material Subsidiaries shall have filed
with the Securities and Exchange Commission (or any governmental agency
substituted therefor) or any national securities exchange;
(g) promptly upon the mailing thereof to the shareholders of
State Auto Mutual generally, copies of all financial statements,
reports and proxy statements so mailed;
(h) promptly after State Auto Mutual receives the results of a
triennial examination by the NAIC of the financial condition and
operations of State Auto Mutual and/or any of its Material
Subsidiaries, a copy thereof;
(i) promptly following the delivery or receipt by State Auto
Mutual or any of its Material Subsidiaries of any correspondence,
notice or report to or from any Applicable Insurance Regulatory
Authority that relates, to any material extent, to the financial
viability of State Auto Mutual or any of its Material Subsidiaries, a
copy thereof;
(j) as soon as possible, and in any event within ten days
after either State Auto Obligor knows or has reason to believe that any
of the events or conditions specified below with respect to any Plan or
Multiemployer Plan has occurred or exists, a statement signed by a
senior
<PAGE> 23
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financial officer of State Auto Mutual setting forth details
respecting such event or condition and the action, if any, that State
Auto Mutual or its ERISA Affiliate proposes to take with respect
thereto (and a copy of any report or notice required to be filed with
or given to the PBGC by State Auto Mutual or an ERISA Affiliate with
respect to such event or condition):
(i) any reportable event, as defined in Section
4043(c) of ERISA and the regulations issued thereunder, with
respect to a Plan, as to which the PBGC has not by regulation
waived the requirement of Section 4043(a) of ERISA that it be
notified within 30 days of the occurrence of such event
(PROVIDED that a failure to meet the minimum funding standard
of Section 412 of the Code or Section 302 of ERISA, including,
without limitation, the failure to make on or before its due
date a required installment under Section 412(m) of the Code
or Section 302(e) of ERISA, shall be a reportable event
regardless of the issuance of any waivers in accordance with
Section 412(d) of the Code); and any request for a waiver
under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of
ERISA of a notice of intent to terminate any Plan or any
action taken by State Auto Mutual or an ERISA Affiliate to
terminate any Plan;
(iii) the institution by the PBGC of proceedings
under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by State Auto Mutual or any ERISA Affiliate of a
notice from a Multiemployer Plan that such action has been
taken by the PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a
Multiemployer Plan by State Auto Mutual or any ERISA Affiliate
that results in liability under Section 4201 or 4204 of ERISA
(including the obligation to satisfy secondary liability as a
result of a purchaser default) or the receipt by State Auto
Mutual or any ERISA Affiliate of notice from a Multiemployer
Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA or that it intends to terminate
or has terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a
fiduciary of any Multiemployer Plan against State Auto Mutual
or any ERISA Affiliate to enforce Section 515 of ERISA, which
proceeding is not dismissed within 30 days; and
(vi) the adoption of an amendment to any Plan
that, pursuant to Section 401(a)(29) of the Code or Section
307 of ERISA, would result in the loss of tax-exempt status of
the trust of which such Plan is a part if State Auto Mutual or
an ERISA Affiliate fails to timely provide security to the
Plan in accordance with the provisions of said Sections;
(k) within five Business Days after receipt, notice from any
Applicable Insurance Regulatory Authority of any threatened or actual
proceeding for suspension or revocation of any License or any similar
proceeding with respect to any such License;
(l) promptly, notice of any denial of coverage, litigation, or
arbitration arising out of any Reinsurance Agreements to which any
Insurance Entity is a party which denial, litigation or arbitration
involves $5,000,000 or more;
<PAGE> 24
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(m) promptly after either State Auto Obligor knows or has
reason to believe that any Put Event (or any event that with notice or
lapse of time or both would become a Put Event) has occurred, a notice
of such Put Event (or such event) describing the same in reasonable
detail and, together with such notice or as soon thereafter as
possible, a description of the action that State Auto Mutual has taken
or proposes to take with respect thereto;
(n) at the time it furnishes each set of financial statements
pursuant to paragraph (a) or (b) above, a certificate of a senior
financial officer of State Auto Mutual (i) to the effect that no Put
Event (or any event that with notice or lapse of time or both would
become a Put Event) has occurred and is continuing (or, if any Put
Event (or any such event) has occurred and is continuing, describing
the same in reasonable detail and describing the action that State Auto
Mutual has taken or proposes to take with respect thereto) and (ii)
setting forth in reasonable detail the computations necessary to
determine whether the State Auto Obligors are in compliance with
Section 4.10 hereof as of the end of the respective quarterly fiscal
period or fiscal year; and
(o) from time to time such other information regarding the
financial condition, operations, business or prospects of State Auto
Mutual or any of its Subsidiaries (including, without limitation, any
Plan or Multiemployer Plan and any reports or other information
required to be filed under ERISA) as the Administrative Agent may
reasonably request.
4.02 LITIGATION. State Auto Mutual will promptly give to the
Administrative Agent (with sufficient copies for each Lender) notice of all
legal or arbitral proceedings, and of all proceedings by or before any
governmental or regulatory authority or agency, and any material development in
respect of such legal or other proceedings, affecting State Auto Mutual or any
of its Subsidiaries, except proceedings that, if adversely determined, would not
(either individually or in the aggregate) have a Material Adverse Effect.
4.03 EXISTENCE, ETC. State Auto Mutual will:
(a) and will cause each of its Material Subsidiaries to,
preserve and maintain its legal existence and all of its material
rights, privileges, licenses and franchises (PROVIDED that nothing in
this Section 4.03 shall prohibit any transaction expressly permitted
under Section 4.05 hereof);
(b) and will cause each of its Subsidiaries to, comply with
the requirements of all applicable laws, rules, regulations and orders
of governmental or regulatory authorities if failure to comply with
such requirements could (either individually or in the aggregate) have
a Material Adverse Effect;
(c) and will cause each of its Material Subsidiaries to, pay
and discharge all taxes, assessments and governmental charges or levies
imposed on it or on its income or profits or on any of its Property
prior to the date on which penalties attach thereto, except for any
such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which
adequate reserves are being maintained;
(d) and will cause each of its Material Subsidiaries to, keep
adequate records and books of account, in which complete entries will
be made in accordance with generally accepted accounting principles
(or, in the case of an Insurance Entity, statutory accounting
principles) consistently applied; and
<PAGE> 25
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(e) and will cause each of its Material Subsidiaries to,
permit representatives of any Lender or the Administrative Agent,
during normal business hours, to examine, copy and make extracts from
its books and records, to inspect any of its Properties, and to discuss
its business and affairs with its officers, all to the extent
reasonably requested by such Lender or the Administrative Agent (as the
case may be).
4.04 INSURANCE. State Auto Mutual will, and will cause each of
its Material Subsidiaries to, maintain insurance with financially sound and
reputable insurance companies, and with respect to Property and risks of a
character usually maintained by corporations engaged in the same or similar
business similarly situated, against loss, damage and liability of the kinds and
in the amounts customarily maintained by such corporations (including general
liability insurance, director's and officer's liability insurance, property
insurance and worker's compensation insurance), PROVIDED that, nothing in this
Section 4.04 shall be deemed to require State Auto Mutual or any of its Material
Subsidiaries to enter into any Reinsurance Agreement and PROVIDED, FURTHER, that
State Auto Mutual and its Material Subsidiaries may self-insure against such
hazards and risks, and in such amounts as is customary for corporations of a
similar size and in similar lines of business.
4.05 PROHIBITION OF FUNDAMENTAL CHANGES.
(a) State Auto Mutual will not, nor will it permit any of its
Material Subsidiaries to, enter into any transaction of merger or consolidation
or amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution).
(b) State Auto Mutual will not, nor will it permit any of its
Material Subsidiaries to, acquire any business or Property from, or capital
stock of, or be a party to any acquisition of, any Person except for purchases
of inventory and other Property to be sold or used in the ordinary course of
business, Assumed Reinsurance in the ordinary course of business, Investments
permitted under Section 4.09 hereof, and Capital Expenditures.
(c) State Auto Mutual will not, nor will it permit any of its
Material Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of,
in one transaction or a series of transactions, all or a substantial part of its
business or Property, whether now owned or hereafter acquired.
(d) Notwithstanding the foregoing provisions of this Section
4.05:
(i) any Subsidiary of State Auto Mutual may be merged or
consolidated with or into: (x) State Auto Mutual if State Auto Mutual
shall be the continuing or surviving corporation or (y) any other such
Subsidiary; PROVIDED that (A) if any such transaction (other than a
transaction described in clause (B) below) shall be between a
Subsidiary and a Wholly Owned Subsidiary, the Wholly Owned Subsidiary
shall be the continuing or surviving corporation and (B) if any such
transaction shall be between State Auto Financial and any other such
Subsidiary, State Auto Financial shall be the surviving corporation;
(ii) any Material Subsidiary of State Auto Mutual may sell,
lease, transfer or otherwise dispose of any or all of its Property
(upon voluntary liquidation or otherwise) to State Auto Mutual or a
Wholly Owned Subsidiary of State Auto Mutual;
(iii) State Auto Mutual may merge or consolidate with or acquire
any other Person if (w) in the case of a merger or consolidation, State
Auto Mutual is the surviving corporation, (x) after giving effect
thereto, no Put Event (and no event that with notice or lapse of time
or both would
<PAGE> 26
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constitute a Put Event) would exist hereunder, (y) the business
activity engaged in by such other Person would be permitted under
Section 4.13 hereof if such other Person were a Subsidiary of State
Auto Mutual prior to such merger or consolidation and (z) the
aggregate amount of the Statutory Surplus (determined as at the date
of the relevant merger, consolidation or acquisition) of all such
other Persons that have been the subject of any merger, consolidation
or acquisition pursuant to this clause (iii) after the date hereof
(other than any such merger, consolidation or acquisition financed
solely with Net Available Proceeds) shall be less than $250,000,000;
and
(iv) any Material Subsidiary of State Auto Mutual may merge or
consolidate with or acquire any other Person if (w) in the case of a
merger or consolidation, the surviving corporation is a Wholly Owned
Subsidiary of State Auto Mutual; PROVIDED, that in the case of any
merger or consolidation involving State Auto Financial, the surviving
corporation is State Auto Financial, (x) after giving effect thereto,
no Put Event (and no event that with notice or lapse of time or both
would constitute a Put Event) would exist hereunder, (y) the business
activity engaged in by such other Person would be permitted under
Section 4.13 hereof if such other Person were a Subsidiary of State
Auto Mutual prior to such merger or consolidation and (z) the aggregate
amount of the Statutory Surplus (determined as at the date of the
relevant merger, consolidation or acquisition) of all such other
Persons that have been the subject of any merger, consolidation or
acquisition pursuant to this clause (iv) during any calendar year
(other than any such merger, consolidation or acquisition financed
solely with Net Available Proceeds) shall be less than $100,000,000.
4.06 LIMITATION ON LIENS. State Auto Mutual will not, nor will
it permit any of its Material Subsidiaries to, create, incur, assume or suffer
to exist any Lien upon any of its Property, whether now owned or hereafter
acquired, except:
(a) Liens in existence on the date hereof and listed in Part
B of Schedule I hereto;
(b) Liens imposed by any governmental authority for taxes,
assessments or charges not yet due or that are being contested in good
faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of State Auto Mutual or the
affected Material Subsidiaries, as the case may be, in accordance with
GAAP (or, in the case of any Insurance Entity, SAP);
(c) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business that are not overdue for a period of more than 30 days or that
are being contested in good faith and by appropriate proceedings and
Liens securing judgments but only to the extent for an amount and for a
period not resulting in a Put Event under clause (j) of the definition
of "Put Event" in Section 1.01 hereof;
(d) pledges or deposits under worker's compensation,
unemployment insurance and other social security legislation;
(e) deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a
like nature incurred in the ordinary course of business;
(f) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and
encumbrances consisting of zoning restrictions, easements, licenses,
restrictions on the use of Property or minor imperfections in title
thereto that do not in
<PAGE> 27
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any case materially detract from the value of the Property subject
thereto or interfere with the ordinary conduct of the business of
State Auto Mutual or any of its Material Subsidiaries;
(g) Liens arising under escrows, trusts, custodianships,
separate accounts, funds withheld procedures, and similar deposits,
arrangements, or agreements established with respect to insurance
policies, annuities, guaranteed investment contracts and similar
products underwritten by, or Reinsurance Agreements entered into by,
any Insurance Entity in the ordinary course of business;
(h) deposits with insurance regulatory authorities;
(i) Liens on Property of any corporation that becomes a
Subsidiary of State Auto Mutual after the date hereof, PROVIDED that
such Liens are in existence at the time such corporation becomes a
Subsidiary of State Auto Mutual and were not created in anticipation
thereof;
(j) Liens upon real and/or tangible personal Property acquired
after the date hereof (by purchase, construction or otherwise) by State
Auto Mutual or any of its Material Subsidiaries, each of which Liens
either (i) existed on such Property before the time of its acquisition
and was not created in anticipation thereof or (ii) was created solely
for the purpose of securing Indebtedness representing, or incurred to
finance, refinance or refund, the cost (including the cost of
construction) of such Property; PROVIDED that (x) no such Lien shall
extend to or cover any Property of State Auto Mutual or such Material
Subsidiary other than the Property so acquired and improvements thereon
and (y) the principal amount of Indebtedness secured by any such Lien
shall at no time exceed 80% of the fair market value (as determined in
good faith by a senior financial officer of State Auto Mutual) of such
Property at the time it was acquired (by purchase, construction or
otherwise); and
(k) additional Liens upon real and/or personal Property
created after the date hereof, PROVIDED that the aggregate Indebtedness
secured thereby and incurred on and after the date hereof shall not
exceed $10,000,000 in the aggregate at any one time outstanding.
4.07 INDEBTEDNESS. State Auto Mutual will not, nor will it
permit any of its Material Subsidiaries to, create, incur or suffer to exist any
Indebtedness except:
(a) Indebtedness created pursuant hereto;
(b) Indebtedness outstanding on the date hereof and listed in
Part A of Schedule I hereto;
(c) Indebtedness of Material Subsidiaries of State Auto
Mutual to State Auto Mutual or to other Material Subsidiaries of State
Auto Mutual; and
(d) additional Indebtedness of State Auto Mutual and its
Material Subsidiaries (including, without limitation, Capital Lease
Obligations and other Indebtedness secured by Liens permitted under
Sections 4.06(j) or 4.06(k) hereof) up to but not exceeding $10,000,000
at any one time outstanding.
4.08 SALE/LEASEBACK TRANSACTIONS. State Auto Mutual will not,
nor will it permit any of its Material Subsidiaries to, enter into any
arrangement with any Person (other than State Auto Mutual or any of its Material
Subsidiaries) providing for the leasing to State Auto Mutual or any of its
Material Subsidiaries for a period of more than five years of any Property which
has been or is to be sold or
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transferred by State Auto Mutual or such Material Subsidiary to such Person or
to any other Person (other than State Auto Mutual or any of its Material
Subsidiaries), to which funds have been or are to be advanced by such Person on
the security of the Property subject to such lease (a "SALE/LEASEBACK
TRANSACTION") if, after giving effect thereto, the Value (as defined below) of
all Sale/Leaseback Transactions at such time would exceed 10% of the Statutory
Surplus of State Auto Mutual at such time. For purposes of this Section 4.08,
"VALUE" shall mean, with respect to any Sale/Leaseback Transaction as at any
time, the amount equal to the greater of (a) the net proceeds of the sale or
transfer of the Property subject to such Sale/Leaseback Transaction and (b) the
fair value, in the opinion of the board of directors of State Auto Mutual of
such Property at the time of entering into such Sale/Leaseback Transaction, in
either case divided first by the number of full years of the term of the lease
and then multiplied by the number of full years of such term remaining at the
time of determination, without regard to any renewal or extension options
contained in such lease.
4.09 INVESTMENTS.
(a) State Auto Mutual will not, nor will it permit any of its
Material Subsidiaries to, make or permit to remain outstanding any Investments
except (i) Investments outstanding on the date hereof and identified in Part B
of Schedule II hereto, (ii) operating deposit accounts with banks, (iii)
Permitted Investments, (iv) Investments by State Auto Mutual and its Material
Subsidiaries in State Auto Mutual and its Subsidiaries, (v) Interest Rate
Protection Agreements, PROVIDED that, without limiting the obligation of State
Auto Mutual under Section 4.12 hereof, when entering into any Interest Rate
Protection Agreement that at the time has, or at any time in the future may give
rise to, any credit exposure, the aggregate credit exposure under all Interest
Rate Protection Agreements (excluding the Interest Rate Protection Agreement
being entered into pursuant to Section 4.12 hereof) shall not exceed
$10,000,000, and (vi) Investments of Insurance Entities not prohibited by clause
(b) of this Section 4.09.
(b) State Auto Mutual will not permit any Insurance Entity to
make any Investment if, on the date of which such Investment is made and after
giving effect thereto, the aggregate value of Investments (other than equity
Investments) held by such Insurance Entity that are rated lower than "2" by the
NAIC or are not rated by the NAIC would exceed 5% of the value of total invested
assets. As used in this Section 4.09(b), the "value" of an Investment refers to
the value of such Investment that would be shown on the most recent Statutory
Statement of the relevant Insurance Entity prepared in accordance with SAP.
4.10 CERTAIN FINANCIAL COVENANTS.
(a) STATUTORY SURPLUS. State Auto Mutual will not permit its
Statutory Surplus at any time to be less than (a) $400,000,000, at any time
prior to the occurrence of a catastrophe giving rise to Loans being outstanding
under the Credit Agreement (PROVIDED that no Loans are outstanding at such time)
and (b) $250,000,000, at any time during the period from and including the date
of occurrence of a catastrophe giving rise to Loans being outstanding under the
Credit Agreement to but excluding the date all Loans shall have been required to
be repaid in full pursuant to the terms of the Credit Agreement. State Auto
Mutual will not permit the Statutory Surplus of State Auto P&C to be less than
$80,000,000 at any time prior to the occurrence of a catastrophe giving rise to
Loans being outstanding under the Credit Agreement (PROVIDED that no Loans are
outstanding at such time).
(b) RISK-BASED CAPITAL RATIO. State Auto Mutual will not
permit its Risk-Based Capital Ratio at any time to be less than (a) 4.00 to 1,
at any time prior to the occurrence of a catastrophe giving rise to Loans being
outstanding under the Credit Agreement (PROVIDED that no Loans are outstanding
at such time) and (b) 2.50 to 1, at any time during the period from and
including the date of occurrence of a catastrophe giving rise to Loans being
outstanding under the Credit Agreement to but excluding the date
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all Loans shall have been required to be repaid in full pursuant to the terms of
the Credit Agreement. State Auto Mutual will not permit the Risk-Based Capital
Ratio of State Auto P&C to be less than 4.00 to 1 at any time prior to the
occurrence of a catastrophe giving rise to Loans being outstanding under the
Credit Agreement (PROVIDED that no Loans are outstanding at such time).
(c) PREMIUM TO SURPLUS. State Auto Mutual will not permit its
Premium to Surplus Ratio at any time to exceed (a) 2.00 to 1, at any time prior
to the occurrence of a catastrophe giving rise to Loans being outstanding under
the Credit Agreement (PROVIDED that no Loans are outstanding at such time) and
(b) 3.00 to 1, at any time during the period from and including the date of
occurrence of a catastrophe giving rise to Loans being outstanding under the
Credit Agreement to but excluding the date all Loans shall have been required to
be repaid in full pursuant to the terms of the Credit Agreement. State Auto
Mutual will not permit the Premium to Surplus Ratio of State Auto P&C to exceed
3.00 to 1 at any time prior to the occurrence of a catastrophe giving rise to
Loans being outstanding under the Credit Agreement (PROVIDED that no Loans are
outstanding at such time).
4.11 NAIC RATIO. In the event that the NAIC or any Applicable
Insurance Regulatory Authority shall at any time promulgate any risk-based
capital ratio requirements or guidelines, State Auto Mutual will cause each
Insurance Entity to comply with the minimum requirements or guidelines
applicable to it as established by the NAIC or such Applicable Insurance
Regulatory Authority.
4.12 INTEREST RATE PROTECTION AGREEMENTS. State Auto Mutual
will within five days after the date of each purchase of Preferred Stock under
the Standby Purchase Agreement, cause State Auto Financial to enter into, and
thereafter maintain in full force and effect, one or more Interest Rate
Protection Agreements with one or more of the Lenders (and/or with a bank or
other financial institution having capital, surplus and undivided profits of at
least $500,000,000), that effectively would enable State Auto Financial (in a
manner satisfactory to the Administrative Agent) to protect itself against
floating interest rates as to a notional principal amount at least equal to 100%
of the aggregate Redemption Value of the Preferred Stock for a period of at
least six years measured from the date of the purchase of the Preferred Stock.
4.13 LINES OF BUSINESS. State Auto Mutual will not, nor will
it permit any of its Subsidiaries to, engage to any substantial extent in any
line or lines of business activity other than the business of owning and
operating property and casualty insurance companies as conducted on the date
hereof and businesses related or incidental thereto (it being understood that
the businesses of State Auto Life Insurance Company, Strategic Insurance
Software, Inc. and Stateco Financial Services, Inc., to the extent conducted as
of the date hereof, are related to the business of owning and operating property
and casualty insurance companies).
4.14 CEDED REINSURANCE. State Auto Mutual will not, nor will
it permit any other Insurance Entity to:
(a) enter into any Reinsurance Agreement with any Person other
than (i) another Insurance Entity, (ii) any Person for which the most
recently published rating by A.M. Best & Co. is "B+" or higher or, if
such Person is not rated by A.M. Best & Co., which has a Statutory
Surplus (or the equivalent thereof) of not less than $100,000,000,
(iii) any Person that posts security under such Reinsurance Agreement
in an amount equal to the total liabilities assumed by such Person,
through a letter of credit issued by an "authorized bank" (as such term
is defined by the Applicable Insurance Regulatory Authority) or cash
collateral deposit or (iv) any other reinsurers acceptable to the
Administrative Agent, PROVIDED, however, that for purposes of the
foregoing clause (ii), any "NA" designation shall not be considered a
rating of A.M. Best & Co;
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(b) enter into any Reinsurance Agreement or Reinsurance
Agreements with Lloyd's of London if the aggregate amount of
reinsurance ceded thereby would exceed 15% of the aggregate premium
volume of reinsurance ceded by the Insurance Entities.
(c) enter into any Surplus Relief Reinsurance except with
another Insurance Entity; or
(d) enter into any Reinsurance Agreement or Reinsurance
Agreements if such Reinsurance Agreements will result in a 20% or more
reduction of net premium volume for the Insurance Entities in any
12-month period.
4.15 TRANSACTIONS WITH AFFILIATES. Except as expressly
permitted by this Agreement, State Auto Mutual will not, nor will it permit any
of its Material Subsidiaries to, directly or indirectly: (a) make any Investment
in an Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any
Property to an Affiliate; (c) merge into or consolidate with or purchase or
acquire Property from an Affiliate; or (d) enter into any other transaction
directly or indirectly with or for the benefit of an Affiliate (including,
without limitation, Guarantees and assumptions of obligations of an Affiliate);
PROVIDED that (i) any Affiliate who is an individual may serve as a director,
officer or employee of State Auto Mutual or any of its Material Subsidiaries and
receive reasonable compensation for his or her services in such capacity and
(ii) State Auto Mutual and its Material Subsidiaries may enter into transactions
(other than extensions of credit by State Auto Mutual or any of its Material
Subsidiaries to an Affiliate) providing for the leasing of Property, the
rendering or receipt of services or the purchase or sale of inventory and other
Property in the ordinary course of business if the monetary or business
consideration arising therefrom would be substantially as advantageous to State
Auto Mutual and its Material Subsidiaries as the monetary or business
consideration that would obtain in a comparable transaction with a Person not an
Affiliate.
4.16 MODIFICATIONS OF CERTAIN DOCUMENTS. State Auto Mutual
will not, and will not permit any of its Subsidiaries to, (a) consent to any
modification, supplement or waiver of (i) the charter or by-laws of State Auto
Mutual, (ii) the charter or by-laws of State Auto Financial, (iii) any material
term of any Retrocession Agreement or Reinsurance Agreement relating to property
and catastrophic risk insurance other than the Intercompany Pooling Arrangement
or (iv) without the prior consent of the Administrative Agent (with the approval
of the Majority Lenders, such approval not to be unreasonably withheld), the
Intercompany Pooling Agreement if such modification, supplement or waiver would
result in the ceding to State Auto Mutual of 70% or more of the catastrophic
loss risk subject to such arrangement or (b) in any manner alter or change the
preferences, rights or powers of the Preferred Stock or permit State Auto
Financial to issue any additional securities so as to affect adversely the
Preferred Stock.
4.17 INDEMNITY FOR CERTAIN COSTS. State Auto Financial agrees
with the Administrative Agent that it will indemnify the Company, promptly upon
demand therefor, for all or any portion of (a) the fees, costs and expenses
payable by the Company under Section 5.01, 5.05 or 5.06 of the Credit Agreement
including, without limitation, in the event that interest for any Lender in
respect of any period is computed at the Base Rate, for the excess (if any) of
the amount of such interest computed at the Base Rate for such period over the
amount of interest that would have been payable in respect of such period had
such interest been computed at the relevant Eurodollar Rate for such period and
(b) the excess of interest in respect of any period payable by the Company under
Section 3.02 of the Credit Agreement at the Post-Default Rate over the interest
in respect of such period that would have been payable had the relevant Default
not occurred. Each of State Auto Financial, State Auto Mutual and the
Administrative Agent agrees that the Company shall be a third-party beneficiary
of this Agreement.
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4.18 DELIVERY OF DOCUMENTS ON THE CLOSING DATE. On the Closing
Date, State Auto Mutual will deliver to the Administrative Agent (with
sufficient copies for each Lender) each of the following documents each of which
shall be satisfactory to the Administrative Agent in form and substance:
(a) certified copies of the charter and by-laws (or equivalent
documents) of each State Auto Obligor and of all corporate authority
for such State Auto Obligor (including, without limitation, board of
director resolutions and evidence of the incumbency, including specimen
signatures, of officers) with respect to the execution, delivery and
performance of such of the Basic Documents to which such State Auto
Obligor is intended to be a party and each other document to be
delivered by such State Auto Obligor from time to time in connection
herewith (and the Administrative Agent and each Lender may conclusively
rely on such certificate until it receives notice in writing from State
Auto Mutual to the contrary);
(b) a certificate of a senior officer of State Auto Mutual,
dated the Closing Date, to the effect that (i) no Put Event (and no
event that with notice or lapse of time or both would become a Put
Event) shall have occurred and be continuing and (ii) the
representations and warranties made by the State Auto Obligors in
Section 3 hereof shall be true and complete on and as of the Closing
Date with the same force and effect as if made on and as of the
Closing Date (or, if any such representation or warranty is expressly
stated to have been made as of a specific date, as of such specific
date);
(c) an opinion, dated the Closing Date, of John Lowther,
general counsel of each State Auto Obligor, substantially in form of
Exhibit B hereto and covering such other matters as the Administrative
Agent or any Lender may reasonably request (and each State Auto Obligor
hereby instructs such counsel to deliver such opinion to the Lenders
and the Administrative Agent);
(d) certified true, correct and complete copies of all
Retrocession Agreements and Reinsurance Agreements in effect on the
Closing Date;
(e) certified true, correct and complete copies of all Tax
Sharing Agreements in effect on the Closing Date;
(f) evidence that the transactions contemplated by the Basic
Documents shall have been approved by each Applicable Insurance
Regulatory Authority with respect to State Auto Mutual, State Auto P&C
and Milbank; and
(g) such other documents as the Administrative Agent or any
Lender or special New York counsel to Chase may reasonably request.
4.19 DELIVERY OF DOCUMENTS ON EACH BORROWING DATE. On the date
of each borrowing by the Company under the Credit Agreement (and as a condition
thereto), State Auto Mutual will deliver to the Administrative Agent (with
sufficient copies for each Lender) each of the following documents each of which
shall be satisfactory to the Administrative Agent in form and substance:
(a) a certificate of a senior officer of State Auto Mutual,
dated the date of such borrowing, (1) to the effect that, both
immediately prior to the making of such Loan and also after giving
effect thereto and to the intended use thereof, (i) no Put Event (and
no event that
<PAGE> 32
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with notice or lapse of time or both would become a Put Event) shall
have occurred and be continuing and (ii) the representations and
warranties made by the State Auto Obligors in Section 3 hereof
(excluding, in the case of the representation and warranty made by the
State Auto Obligors in the last sentence of clauses (a) and (b) of
Section 3.02 hereof, any such change to the extent such change results
from the catastrophic loss claims and/or loss adjustment expenses to
which the borrowing by the Company under the Credit Agreement and
related issuance of Preferred Stock relates) shall be true and
complete on and as of such date of borrowing with the same force and
effect as if made on and as of such date of borrowing (or, if any such
representation or warranty is expressly stated to have been made as of
a specific date, as of such specific date) and (2) describing in
reasonable detail the catastrophic loss claims and/or loss adjustment
expenses to which such borrowing relates;
(b) such other documents as the Administrative Agent or any
Lender or special New York counsel to Chase may reasonably request
(including, without limitation, opinions of counsel to the State Auto
Obligors relating to the issuance of the Preferred Stock in connection
with such borrowing).
4.20 DELIVERY OF DOCUMENTS IN CONNECTION WITH THE EXTENSION OF
THE COMMITMENT TERMINATION DATE. On each of the "Request Date" and the "Existing
Commitment Termination Date" (in each case as defined in Section 2.10 of the
Credit Agreement) State Auto Mutual will deliver to the Administrative Agent
(with sufficient copies for each Lender) each of the following documents each of
which shall be satisfactory to the Administrative Agent in form and substance:
(a) a certificate of a senior officer of State Auto Mutual,
dated such date, to the effect that (i) no Put Event (and no event that
with notice or lapse of time or both would become a Put Event) shall
have occurred and be continuing and (ii) the representations and
warranties made by the State Auto Obligors in Section 3 hereof shall be
true and complete on and as of such date of borrowing with the same
force and effect as if made on and as of such date of borrowing (or, if
any such representation or warranty is expressly stated to have been
made as of a specific date, as of such specific date).
(b) a certificate of a senior officer of State Auto Mutual,
dated such date, to the effect that (i) the "Probable Maximum Loss" (as
defined below) of the State Auto Obligors for the 250-year return
period shall not exceed (x) $400,000,000 for earthquake peril and (y)
$250,000,000 for hurricane peril and (ii) attached thereto is a true,
correct and complete copy of the report prepared by the applicable
Modelling Firm (as defined below) in connection with the calculation
referred to in the definition of "Probable Maximum Loss" below. For
purposes of this clause (b), "PROBABLE MAXIMUM LOSS" shall mean, for
any date, the "probable maximum loss" as most recently calculated prior
to such date by Risk Management Solutions, Inc., Applied Insurance
Research, EQECAT Inc., Tillinghast (a Towers Perrin Company) or another
independent modelling firm satisfactory to the Administrative Agent
(each, a "MODELLING FIRM").
4.21 CONSENT TO ASSIGNMENT, ETC.
(a) To the extent contemplated by the Company Pledge
Agreement, or otherwise after and during the continuance of an Event of Default,
the Administrative Agent and any designee or assignee thereof shall be entitled
to exercise any and all rights of the Company under the Standby Purchase
Agreement and the Pledged Stock in accordance with the terms of the Standby
Purchase Agreement and such Pledged Stock, and State Auto Financial shall comply
in all respects with such exercise. Without limiting the generality of the
foregoing, to the extent contemplated by the Company
<PAGE> 33
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Pledge Agreement, or otherwise after and during the continuance of an Event of
Default, the Administrative Agent and any designee or assignee thereof shall
have the full right and power to enforce directly against State Auto Financial
all obligations of State Auto Financial under the Standby Purchase Agreement and
the Pledged Stock and otherwise to exercise all remedies thereunder and to make
all demands and give all notices and make all requests required or permitted to
be made by the Company under the Standby Purchase Agreement or the Pledged
Stock. Nothing herein shall require the Administrative Agent or such designee or
assignee to cure any default of the Company under the Standby Purchase Agreement
or to perform any act, duty or obligation of the Company under the Standby
Purchase Agreement, but shall only give them the option so to do.
(b) State Auto Financial will not, without the prior written
consent of the Administrative Agent, (i) cancel, suspend or terminate the
Standby Purchase Agreement or consent to or accept any such cancellation,
suspension or termination thereof, (ii) amend, supplement or otherwise modify
the Standby Purchase Agreement or (iii) petition, request or take any other
legal or administrative action which seeks, or may reasonably be expected, to so
rescind, cancel, terminate or suspend or amend or modify the Standby Purchase
Agreement.
(c) A foreclosure of, or other exercise of remedies under, the
Company Pledge Agreement or any sale thereunder by the Administrative Agent or
its assignee or designee, whether by judicial proceedings or under any power of
sale contained therein, or any conveyance from the Company to the Administrative
Agent, the Lenders or any such assignee or designee, in lieu thereof, shall not
require the consent of State Auto Financial.
(d) Upon the exercise by the Administrative Agent of any of
the remedies set forth in Section 5.05 of the Company Pledge Agreement, the
Administrative Agent may assign its rights and interests and the rights and
interests of the Company under the Standby Purchase Agreement and/or the Pledged
Stock to any other Person.
(e) State Auto Financial will not be released from any of its
obligations under the Standby Purchase Agreement or the Pledged Stock pursuant
to any assignment or transfer (including by reason of a merger, consolidation,
sale of substantially all of its assets or otherwise), and shall not delegate
any of its obligations under the Standby Purchase Agreement or the Pledged
Stock, unless the Administrative Agent shall have previously consented in
writing to such release or delegation, as the case may be.
Section 5. MISCELLANEOUS.
5.01 WAIVER. No failure on the part of the Administrative
Agent or any Lender to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
5.02 NOTICES. All notices, requests and other communications
provided for herein shall be given or made in writing (including, without
limitation, by telecopy) delivered to the intended recipient at the "Address for
Notices" specified below its name on the signature pages hereof (or, as to the
Administrative Agent, on the signature pages of the Credit Agreement) or, as to
any party, at such other address as shall be designated by such party in a
notice to each other party. Except as otherwise
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provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by telecopier or personally delivered or, in the
case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
5.03 EXPENSES, ETC. State Auto Mutual and State Auto Financial
jointly and severally agree to pay or reimburse each of the Lenders and the
Administrative Agent for: (a) all reasonable and documented out-of-pocket costs
and expenses of the Administrative Agent (including, without limitation, the
reasonable and documented fees and expenses of Milbank, Tweed, Hadley & McCloy,
special New York counsel to Chase) in connection with (i) the negotiation,
preparation, execution and delivery of this Agreement and the other Basic
Documents and the making of the Loans under the Credit Agreement and (ii) the
negotiation or preparation of any modification, supplement or waiver of any of
the terms of this Agreement or any of the other Basic Documents (whether or not
consummated); (b) all reasonable out-of-pocket costs and expenses of the Lenders
and the Administrative Agent (including, without limitation, the reasonable fees
and expenses of legal counsel) in connection with (i) any Put Event (and any
event that with notice or lapse of time or both would become a Put Event) and
any enforcement or collection proceedings with respect to any Basic Document
resulting therefrom, including, without limitation, all manner of participation
in or other involvement with (x) bankruptcy, insolvency, receivership,
foreclosure, winding up or liquidation proceedings, (y) judicial or regulatory
proceedings and (z) workout, restructuring or other negotiations or proceedings
(whether or not the workout, restructuring or transaction contemplated thereby
is consummated) and (ii) the enforcement of this Section 5.03; and (c) all
transfer, stamp, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Agreement or
any of the other Basic Documents or any other document referred to herein or
therein.
Each of State Auto Mutual and State Auto Financial hereby
jointly and severally agrees to indemnify the Administrative Agent and each
Lender and their respective directors, officers, employees, attorneys and agents
(each, an "INDEMNIFIED PERSON") from, and hold each of them harmless against,
any and all losses, liabilities, claims, damages or expenses incurred by any of
them (including, without limitation, any and all losses, liabilities, claims,
damages or expenses incurred by the Administrative Agent to any Lender, whether
or not the Administrative Agent or any Lender is a party thereto) arising out of
or by reason of any investigation or litigation or other proceedings (including
any threatened investigation or litigation or other proceedings) relating to or
arising out of the Loans under the Credit Agreement or any actual or proposed
use by the Company of the proceeds thereof or otherwise relating to or arising
out of any Basic Document, including, without limitation, the reasonable fees
and disbursements of counsel incurred in connection with any such investigation
or litigation or other proceedings (but excluding any such losses, liabilities,
claims, damages or expenses claimed by an Indemnified Person to the extent
finally determined by a court of competent jurisdiction to have been incurred
directly and primarily by reason of the gross negligence or willful misconduct
of such Indemnified Person. Promptly after receipt by any Indemnified Person of
notice of any complaint or the commencement of any action or proceeding with
respect to which indemnification is being sought hereunder, such Indemnified
Person will notify State Auto Mutual in writing of such complaint or of the
commencement of such action or proceeding, but failure so to notify State Auto
Mutual will not relieve the State Auto Obligors from any liability which the
State Auto Obligors may have hereunder or otherwise, except to the extent that
such failure materially prejudices the rights of the State Auto Obligors. If so
elected by either State Auto Obligor, such State Auto Obligor will assume the
defense of such action or proceeding, including the employment of counsel
reasonably satisfactory to such Indemnified Person and the payment of the fees
and disbursements of such counsel. In the event, however, that such Indemnified
Person determines in its reasonable judgment that having common counsel would
present such counsel with a conflict of interest or if neither State Auto
Obligor assumes the defense of the action or proceeding in a timely manner, then
such Indemnified Person may employ separate counsel to represent or defend such
Indemnified Person in any such action or proceeding and the
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State Auto Obligors jointly and severally agree to pay or reimburse such
Indemnified Person for the reasonable fees and disbursements of such counsel,
PROVIDED, however, that the State Auto Obligors will not be required to pay or
reimburse the fees and disbursements of more than one separate counsel for all
Indemnified Persons in any jurisdiction in any single action or proceeding. In
any action or proceeding the defense of which a State Auto Obligor assumes, the
Indemnified Person (a) will cooperate with the such State Auto Obligor in
defending such action or proceeding, but the State Auto Obligors jointly and
severally agree to pay or reimburse all expenses of such Indemnified Person of
so cooperating and (b) will have the right to participate in such litigation and
to retain its own counsel at such Indemnified Person's own expense. No
Indemnified Person shall be responsible or liable to State Auto Mutual or any of
its Subsidiaries, the Company or any other Person for any consequential damages
that may be alleged in connection with any of the Basic Documents and the
transactions contemplated thereby.
5.04 AMENDMENTS, ETC. Except as otherwise expressly provided
in this Agreement, any provision of this Agreement may be modified or
supplemented only by an instrument in writing signed by each State Auto Obligor
and the Administrative Agent (with the consent of the Lenders as specified in
Section 10.09 of the Credit Agreement), and any provision of this Agreement may
be waived by the Administrative Agent (with the consent of the Lenders as
specified in Section 10.09 of the Credit Agreement).
5.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, PROVIDED, that neither State Auto Obligor may
assign any of its rights or obligations hereunder without the prior consent of
the Administrative Agent (with the consent of all of the Lenders).
5.06 CAPTIONS. The captions and section headings appearing
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
5.07 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
5.08 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement
shall be governed by, and construed in accordance with, the law of the State of
New York. Each State Auto Obligor hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of the Supreme Court of the State of New York sitting in New York
County (including its Appellate Division), and of any other appellate court in
the State of New York, for the purposes of all legal proceedings arising out of
or relating to this Agreement or the transactions contemplated hereby. Each
State Auto Obligor hereby irrevocably waives, to the fullest extent permitted by
applicable law, any objection that it may now or hereafter have to the laying of
the venue of any such proceeding brought in such a court and any claim that any
such proceeding brought in such a court has been brought in an inconvenient
forum.
5.09 WAIVER OF JURY TRIAL. EACH OF STATE AUTO MUTUAL, STATE
AUTO FINANCIAL AND THE ADMINISTRATIVE AGENT HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
5.10 TREATMENT OF CERTAIN INFORMATION; CONFIDENTIALITY.
<PAGE> 36
-35-
(a) Each State Auto Obligor acknowledges that from time to
time financial advisory, investment banking and other services may be offered or
provided to State Auto Mutual or one or more of its Subsidiaries (in connection
with this Agreement or otherwise) by any Lender or by one or more subsidiaries
or affiliates of such Lender and such State Auto Obligor hereby authorizes each
Lender to share any information delivered to such Lender by or on behalf of
State Auto Mutual and its Subsidiaries pursuant to this Agreement, or in
connection with the decision of such Lender to enter into the Credit Agreement,
to any such subsidiary or affiliate, it being understood that any such
subsidiary or affiliate receiving such information shall be bound by the
provisions of paragraph (b) below as if it were a Lender hereunder. Such
authorization shall survive the termination of this Agreement.
(b) Each Lender and the Administrative Agent agrees (on behalf
of itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking practices, any
non-public information supplied to it by either State Auto Obligor pursuant to
this Agreement that is identified by such State Auto Obligor as being
confidential at the time the same is delivered to the Administrative Agent,
PROVIDED that nothing herein shall limit the disclosure of any such information
(i) after such information shall have become public (other than through a
violation of this Section 5.10), (ii) to the extent required by statute, rule,
regulation or judicial process, (iii) to counsel for any of the Lenders or the
Administrative Agent, (iv) to bank examiners (or any other regulatory authority
having jurisdiction over any Lender or the Administrative Agent), or to auditors
or accountants, (v) to the Administrative Agent or any other Lender (or to Chase
Securities Inc.), (vi) in connection with any litigation to which any one or
more of the Lenders or the Administrative Agent is a party, or in connection
with the enforcement of rights or remedies hereunder or under any other Basic
Document, (vii) to a subsidiary or affiliate of such Lender as provided in
paragraph (a) above or (viii) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant (or prospective
assignee or participant) first executes and delivers to the respective Lender an
acknowledgement to the effect that it is bound by the provisions of this Section
5.10(b), which acknowledgement may be included as part of the respective
assignment or participation agreement pursuant to which such assignee or
participant acquires an interest in the Loans under the Credit Agreement);
PROVIDED, FURTHER, that in no event shall any Lender or the Administrative Agent
be obligated or required to return any materials furnished by either State Auto
Obligor.
5.11 NO LIABILITY. Except as expressly provided herein,
neither the Administrative Agent nor any Lender shall be responsible or have any
liability for (a) any statements, warranties or representations made in or in
connection with the Credit Agreement, any other Basic Document or any other
instrument or document furnished pursuant thereto, or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement, any other Basic Document or any other instrument or document
furnished pursuant thereto and (b) the financial condition of the Company or any
other Person or any other obligation of or the performance or observance by the
Company, any other Person or any other obligor of any of their respective
obligations under the Credit Agreement or any other Basic Document or any other
instrument or document furnished pursuant thereto.
5.12 FURTHER ASSURANCES. Each State Auto Obligor agrees that,
from time to time upon the written request of the Administrative Agent, such
State Auto Obligor will execute and deliver such further documents and do such
other acts and things as the Lender may reasonably request in order fully to
effect the purposes of this Agreement.
<PAGE> 37
-36-
5.13 SEVERABILITY. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(a) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Administrative
Agent and the Lenders in order to carry out the intentions of the parties hereto
as nearly as may be possible and (b) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
5.14 THIRD-PARTY BENEFICIARIES. Each State Auto Obligor agrees
that each Lender shall be a third-party beneficiary of this Agreement and shall
be entitled to enforce its rights hereunder as fully as if it were a party
hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
STATE AUTOMOBILE MUTUAL INSURANCE COMPANY
By /s/ Robert H. Moone
---------------------------------------
Title: President
Address for Notices:
State Automobile Mutual Insurance Company
518 East Broad Street
Columbus, Ohio 43215
Attention: John Lowther, Esq.
Telecopier No.: 614-464-4911
Telephone No.: 614-464-5052
STATE AUTO FINANCIAL CORPORATION
By /s/ Robert H. Moone
---------------------------------------
Title: President
Address for Notices:
State Auto Financial Corporation
518 East Broad Street
Columbus, Ohio 43215
Attention: John Lowther, Esq.
Telecopier No.: 614-464-4911
<PAGE> 38
-37-
Telephone No.: 614-464-5052
<PAGE> 39
-38-
THE CHASE MANHATTAN BANK,
as Administrative Agent
By_________________________
Title:
<PAGE> 40
-39-
SCHEDULE I
[Material Agreements and Liens]
<PAGE> 41
-40-
SCHEDULE II
[Subsidiaries and Investments]
<PAGE> 42
-41-
SCHEDULE III
[Intentionally Omitted]
<PAGE> 43
-42-
SCHEDULE IV
[Equity Rights and Redemption Obligations]
<PAGE> 44
-43-
EXHIBIT A to the
Put Agreement
[Form of Put Notice]
[Date]
State Automobile Mutual Insurance Company
State Auto Financial Corporation
[Address]
Re: Put Agreement dated as of August 16, 1996, between State Automobile Mutual
Insurance Company, State Auto Financial Corporation and The Chase
Manhattan Bank, as Administrative Agent.
Dear Ladies and Gentlemen:
Reference is made to the Put Agreement dated as of August 16,
1996 (as modified and supplemented and in effect from time to time, the "PUT
AGREEMENT"), between State Automobile Mutual Insurance Company ("STATE AUTO
MUTUAL"), State Auto Financial Corporation and The Chase Manhattan Bank, as
Administrative Agent. Capitalized terms used but not defined herein shall have
the respective meanings assigned to such terms in the Put Agreement.
[Pursuant to Section 2.02 of the Put Agreement, the
undersigned hereby requires that State Auto Mutual purchase all of each Lender's
Loans, Note and Commitment. The aggregate purchase price payable by State Auto
Mutual for all such Loans, Notes and Commitments shall be $_______________
representing the sum of (a) principal of such Loans in the amount of
$_______________, PLUS (b) accrued and unpaid interest thereon in the amount of
$_______________, PLUS (c) other amounts payable under the Basic Documents in
respect thereof in the amount of $ .]
[Pursuant to Section 2.03 of the Put Agreement, the
undersigned hereby requires that State Auto Mutual purchase all of the Pledged
Stock for an aggregate purchase price equal to $_______________ representing the
sum of (a) the aggregate Redemption Value of such Pledged Stock in the amount of
$_______________, PLUS (b) accrued and unpaid dividends thereon in the amount of
$_______________.]
The Put Purchase Date for such purchase shall be
_______________.
THE CHASE MANHATTAN BANK, as
Administrative Agent
By_________________________
Title:
<PAGE> 45
-44-
EXHIBIT B to the
Put Agreement
[Form of Opinion of General Counsel of the State Auto Obligors]
August 16, 1996
To each of the Lenders party to the
Credit Agreement referred to
below and The Chase Manhattan Bank,
as Administrative Agent
Ladies and Gentlemen:
I am the general counsel of State Automobile Mutual Insurance
Company ("STATE AUTO MUTUAL") and State Auto Financial Corporation ("STATE AUTO
FINANCIAL and, together with State Auto Mutual, the "STATE AUTO OBLIGORS") and
have acted as counsel to the State Auto Obligors in connection with (i) the Put
Agreement dated as of August 16, 1996 (the "PUT AGREEMENT") among the State Auto
Obligors and The Chase Manhattan Bank, in its capacity as administrative agent
(the "ADMINISTRATIVE AGENT") on behalf of the lenders party to a Credit
Agreement dated as of August 16, 1996 among SAF Funding Corporation, the
Administrative Agent and (ii) the agreements, instruments and other documents
referred to in the next paragraph. All capitalized terms used but not defined
herein have the respective meanings given to such terms in the Put Agreement.
This opinion letter is delivered to you pursuant to Section 4.04(c) of the Put
Agreement.
In rendering the opinions expressed below, I have examined the
following agreements, instruments and other documents:
(a) the Credit Agreement;
(b) the Pledge Agreements;
(c) the Put Agreement;
(d) the Standby Purchase Agreement (collectively with the Put
Agreement, the "STATE AUTO AGREEMENTS"); and
(e) such records of the State Auto Obligors and such other
documents as I have deemed necessary as a basis for the
opinions expressed below.
In my examination, I have assumed the genuineness of all
signatures, the authenticity of all documents submitted to me as originals and
the conformity with authentic original documents of all documents submitted to
me as copies. When relevant facts were not independently established, I have
relied upon certificates of governmental officials and appropriate
representatives of the State Auto Obligors and upon representations made in or
pursuant to the State Auto Agreements.
<PAGE> 46
-45-
In rendering the opinions expressed below, I have assumed,
with respect to all of the documents referred to in this opinion letter, that
(except, to the extent set forth in the opinions expressed below, as to the
State Auto Obligors):
(i) such documents have been duly authorized by, have been duly
executed and delivered by, and constitute legal, valid,
binding and enforceable obligations of, all of the parties to
such documents;
(ii) all signatories to such documents have been duly authorized;
and
(iii) all of the parties to such documents are duly organized and
validly existing and have the power and authority (corporate,
partnership or other) to execute, deliver and perform such
documents.
Based upon and subject to the foregoing and subject also to
the comments and qualifications set forth below, and having considered such
questions of law as I have deemed necessary as a basis for the opinions
expressed below, I am of the opinion that:
1. State Auto Mutual is a mutual insurance company duly
organized, validly existing and in good standing under the laws of the
State of Ohio. State Auto Financial is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Ohio.
2. Each State Auto Obligor has all requisite corporate power
and authority to execute and deliver, and to perform its obligations
and to incur liabilities under, the State Auto Agreements to which it
is a party.
3. The execution, delivery and performance by each State Auto
Obligor of, and the incurrence by such State Auto Obligor of
liabilities under, each State Auto Agreement to which such State Auto
Obligor is a party, have been duly authorized by all necessary
corporate action on the part of such State Auto Obligor.
4. Each State Auto Agreement has been duly executed and
delivered by each State Auto Obligor party thereto.
5. Under Ohio conflict of laws principles, the stated choice
of New York law to govern the State Auto Agreements will be honored by
the courts of the State of Ohio and the State Auto Agreements will be
construed in accordance with, and will be treated as being governed by,
the law of the State of New York. However, if the State Auto Agreements
were stated to be governed by and construed in accordance with the law
of the State of Ohio, or if an Ohio court were to apply the law of the
State of Ohio to the State Auto Agreements, each State Auto Agreement
would constitute the legal, valid and binding obligation of each State
Auto Obligor party thereto, enforceable against such State Auto Obligor
in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or
transfer or other similar laws relating to or affecting the rights of
creditors generally and except as the enforceability of the State Auto
Agreements is subject to the application of general principles of
equity (regardless of whether considered in a proceeding in equity or
at law), including, without limitation, (a) the possible
unavailability of specific performance, injunctive relief or any other
equitable remedy and (b) concepts of materiality, reasonableness, good
faith and fair dealing.
<PAGE> 47
-46-
6. No authorization, approval or consent of, and no filing or
registration with, any governmental or regulatory authority or agency
of the United States of America or the State of Ohio (other than any
authorizations, approvals, consents, filings and registrations
heretofore duly made or obtained and in full force and effect) is
required on the part of either State Auto Obligor for the execution,
delivery or performance by such State Auto Obligor of, or for the
incurrence by such State Auto Obligor of any liabilities under, the
State Auto Agreements to which such State Auto Obligor is a party.
7. The execution, delivery and performance by each State Auto
Obligor of, and the consummation by such State Auto Obligor of the
transactions contemplated by, the State Auto Agreements to which such
State Auto Obligor is a party do not and will not (a) violate any
provision of the Articles of Incorporation or Code of Regulations of
such State Auto Obligor, (b) violate any applicable law, rule or
regulation of the United States of America or the State of Ohio, (c)
violate any order, writ, injunction or decree of any court or
governmental authority or agency or any arbitral award applicable to
such State Auto Obligor of which I have knowledge (after due inquiry)
or (d) result in a breach of, constitute a default under, require any
consent under, or result in the acceleration or required prepayment of
any indebtedness pursuant to the terms of, any agreement or instrument
of which I have knowledge (after due inquiry) to which such State Auto
Obligor or any of its Subsidiaries is a party or by which any of them
is bound or to which any of them is subject, or result in the creation
or imposition of any Lien upon any Property of such State Auto Obligor
or any of its Subsidiaries pursuant to the terms of any such agreement
or instrument.
8. I have no knowledge (after due inquiry) of any legal or
arbitral proceedings, or any proceedings by or before any governmental
or regulatory authority or agency, now pending or threatened against or
affecting the either State Auto Obligor or any of their respective
Properties that, if adversely determined, could have a Material Adverse
Effect.
9. State Auto Financial has duly authorized and reserved for
issuance 2,500,000 shares of Class A Preferred Stock.
The foregoing opinions are subject to the following comments
and qualifications:
(A) The enforceability of Section 5.03 of the Put Agreement
and Section 6.04 of the Standby Purchase Agreement may be limited by
(i) laws rendering unenforceable indemnification contrary to Federal or
state securities laws and the public policy underlying such laws and
(ii) laws limiting the enforceability of provisions exculpating or
exempting a party from, or requiring indemnification of a party for,
its own action or inaction, to the extent such action or inaction
involves gross negligence, recklessness or wilful or unlawful conduct.
(B) The enforceability of provisions in the State Auto
Agreements to the effect that terms may not be waived or modified
except in writing may be limited under certain circumstances.
(C) I express no opinion as to the second sentence of Section
5.08 of the Put Agreement or the second sentence of Section 7.07 of the
Standby Purchase Agreement, insofar as either such sentence relates to
the subject matter jurisdiction of the United States District Court for
the Southern District of New York to adjudicate any controversy related
to the applicable State Auto Agreement.
<PAGE> 48
-47-
The foregoing opinions are limited to matters involving the
Federal laws of the United States of America and the law of the State of Ohio,
and I do not express any opinion as to the laws of any other jurisdiction. The
opinions contained in this letter are rendered only as of the date hereof and I
undertake no obligation to update this letter or the opinions contained herein
after the date hereof. The opinions contained in this letter only constitute my
professional judgment as to the consequences of and the applicability of certain
laws to the documents and agreements referred to and the parties thereto and
should not be considered to be a guarantee of any particular result.
At the request of my clients, this opinion letter is provided
to you by me in my capacity as counsel to the State Auto Obligors, and this
opinion letter may not be relied upon by any Person for any purpose other than
in connection with the transactions contemplated by the Basic Documents without,
in each instance, my prior written consent.
Very truly yours,
<PAGE> 1
10(CC)
STANDBY PURCHASE AGREEMENT
BETWEEN
STATE AUTO FINANCIAL CORPORATION
AND
SAF FUNDING CORPORATION
DATED AUGUST 16, 1996
<PAGE> 2
EXHIBIT E to the
Credit Agreement
************************************************************
STATE AUTO FINANCIAL CORPORATION
and
SAF FUNDING CORPORATION
-----------------------------
STANDBY PURCHASE AGREEMENT
Dated as of August 16, 1996
------------------------------
************************************************************
<PAGE> 3
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which
it is attached but is inserted for convenience of reference only.
Page
Section 1. Definitions and Accounting Terms............................... 1
Section 2. Purchase of Preferred Stock. .................................. 6
2.01 Purchases. ................................................. 6
2.02 Notices of Purchases. ...................................... 6
2.03 Commitment Fee.............................................. 6
Section 3. Conditions to Purchase......................................... 6
Section 4. Representations and Warranties of State Auto Financial......... 7
4.01 Corporate Existence......................................... 7
4.02 Litigation.................................................. 7
4.03 No Breach................................................... 7
4.04 Action...................................................... 8
4.05 Approvals................................................... 8
4.06 Capitalization.............................................. 8
4.07 True and Complete Disclosure................................ 8
Section 5. Representations and Warranties of the Company.................. 9
5.01 Investment.................................................. 9
5.02 No Agreement to Transfer.................................... 9
5.03 Knowledge and Experience.................................... 9
5.04 Access to Information....................................... 9
5.05 Risk........................................................ 9
5.06 Restrictions on Transfer.................................... 9
<PAGE> 4
Page
Section 6. Covenants...................................................... 10
6.01 Transfer.................................................... 10
6.02 Redemption.................................................. 10
6.03 Use of Proceeds............................................. 10
Section 7. Registration Rights............................................ 10
7.01 Demand Registration......................................... 10
7.02 Piggyback Registrations..................................... 12
7.03 Registration Procedures..................................... 13
7.04 Underwritten Offerings...................................... 17
7.05 Holdback Agreements By State Auto Financial and Other
Securityholders............................................. 18
7.06 Indemnification............................................. 18
7.07 Covenants Relating to Rule 144.............................. 21
7.08 References to holders of Registrable Securities............. 21
Section 8. Miscellaneous.................................................. 22
8.01 Waiver...................................................... 22
8.02 Notices..................................................... 22
8.03 Amendments, Etc............................................. 22
8.04 Successors and Assigns...................................... 22
8.05 Captions.................................................... 22
8.06 Counterparts................................................ 22
8.07 Governing Law; Submission to Jurisdiction................... 22
8.08 Waiver of Jury Trial........................................ 23
8.09 Further Assurances.......................................... 23
8.10 Payments by State Auto Financial............................ 23
<PAGE> 5
Page
8.11 Payments Received by the Company under Basic Documents.......23
8.12 Third-Party Beneficiaries....................................23
8.13 Severability.................................................23
SCHEDULE I - Equity Rights and Redemption Obligations
EXHIBIT A - Form of Class A Preferred Stock Certificate
EXHIBIT B - Form of Purchase Notice
EXHIBIT C - Form of Opinion of Counsel to
State Auto Financial
<PAGE> 6
-5-
STANDBY PURCHASE AGREEMENT dated as of August 16, 1996,
between:
STATE AUTO FINANCIAL CORPORATION, a corporation duly organized
and validly existing under the laws of the State of Ohio ("STATE AUTO
FINANCIAL"); and
SAF Funding Corporation, a Delaware corporation (the
"COMPANY").
WHEREAS, State Auto Financial seeks to raise funds for
catastrophic loss claims and/or loss adjustment expenses that may be made from
time to time for residential and commercial property under insurance coverage
underwritten by State Automobile Mutual Insurance Company, an Ohio mutual
insurance company ("STATE AUTO MUTUAL") and certain of its affiliates, which
have been reinsured by State Auto Property and Casualty Insurance Company, a
South Carolina corporation ("STATE AUTO P&C");
WHEREAS, State Auto Financial intends to raise such funds
through the issuance and sale by State Auto Financial and the purchase by the
Company, from time to time, of State Auto Financial's Class A Preferred Stock,
no par value per share (the "CLASS A PREFERRED STOCK");
WHEREAS, State Auto Financial desires to issue and sell its
Class A Preferred Stock from time to time to the Company in accordance with the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the mutual
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
Section 1. DEFINITIONS AND ACCOUNTING TERMS. As used herein,
the following terms shall have the following meanings (all terms defined in this
Section 1.01 or in other provisions of this Agreement in the singular to have
the same meanings when used in the plural and vice versa):
"ADMINISTRATIVE AGENT" shall mean The Chase Manhattan Bank, as
administrative agent under the Credit Agreement.
"BASIC DOCUMENTS" shall have the meaning assigned thereto in
the Credit Agreement.
"COMMISSION" shall mean the United States Securities and
Exchange Commission, or any successor governmental agency or authority.
"COMMITMENT" shall have the meaning assigned thereto in the
Credit Agreement.
"COMPANY PLEDGE AGREEMENT" shall mean the Pledge and Security
Agreement, dated as of the date hereof, among the Company and the Administrative
Agent, as modified and supplemented and in effect from time to time.
<PAGE> 7
- 6 -
"CREDIT AGREEMENT" shall mean the Credit Agreement, dated as
of the date hereof, among the Company, the Administrative Agent and the Lenders,
as modified and supplemented and in effect from time to time.
"CUTBACK REGISTRATION" shall mean any Demand Registration or
Piggyback Registration to be effected as an underwritten Public Offering in
which the Managing Underwriter with respect thereto advises State Auto Financial
and the Requesting Holders in writing that, in its opinion, the number of
securities requested to be included in such registration (including securities
of State Auto Financial which are not Registrable Securities) exceed the number
which can be sold in such offering without a material reduction in the selling
price anticipated to be received for the securities to be sold in such Public
Offering.
"DEMAND REGISTRATION" shall mean any registration of
Registrable Securities under the Securities Act effected in accordance with
Section 7.01 hereof.
"EFFECTIVE LONG-FORM REGISTRATION" shall mean a Long-Form
Registration that results in an Effective Registration.
"EFFECTIVE REGISTRATION" shall mean a Demand Registration
which (a) has been declared or ordered effective in accordance with the rules of
the Commission, (b) has been kept effective for the period of time contemplated
by Section 7.03(b) and (c) hereof has resulted in the Registrable Securities
requested to be included in such registration actually being sold (except by
reason of some act or omission on the part of the Requesting Holders); provided
that for purposes of this Agreement (i) a Cutback Registration shall not be an
Effective Registration and (ii) a Demand Registration in which State Auto
Financial includes securities for sale for the account of State Auto Financial
shall not be an Effective Registration.
"EFFECTIVE SHORT-FORM REGISTRATION" shall mean a Short-Form
Registration that results in an Effective Registration.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
"FORM S-1" shall mean Form S-l promulgated by the Commission
under the Securities Act, or any successor or similar long-form registration
statement.
"FORM S-2" shall mean Form S-2 promulgated by the Commission
under the Securities Act, or any successor or similar short-form registration
statement.
"FORM S-3" shall mean Form S-3 promulgated by the Commission
under the Securities Act, or any successor or similar short-form registration
statement.
"INDEMNIFIED PARTY" shall mean a party entitled to indemnity
in accordance with Section 7.06 hereof.
"INDEMNIFYING PARTY" shall mean a party obligated to provide
indemnity in accordance with Section 7.06 hereof.
"INSPECTORS" shall have the meaning assigned thereto in
Section 7.03(j) hereof.
<PAGE> 8
- 7 -
"LENDERS" shall have the meaning assigned thereto in the
Credit Agreement.
"LIEN" shall mean, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such Property. For purposes of this Agreement, a Person shall be deemed to own
subject to a Lien any Property that it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement (other than an operating lease)
relating to such Property.
"LOANS" shall have the meaning assigned thereto in the
Credit Agreement.
"LONG-FORM REGISTRATION" shall mean a Demand Registration
effected by the filing of a registration statement on Form S-l with the
Commission.
"LOSSES" shall have the meaning assigned thereto in Section
7.06(a) hereof.
"MAJORITY LENDERS" shall have the meaning assigned thereto in
the Credit Agreement.
"MANAGING UNDERWRITER" shall mean, with respect to any Public
Offering, the underwriter or underwriters managing such Public Offering.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect
on (a) the Property, business, operations, financial condition, prospects,
liabilities or capitalization of State Auto Mutual and its Subsidiaries taken as
a whole, (b) the ability of State Auto Financial to issue the Class A Preferred
Stock to or perform its obligations under this Agreement, (c) the ability of
State Auto Mutual or State Auto Financial to perform its respective obligations
under the Put Agreement, (d) the validity or enforceability of any of the Basic
Documents or (e) the rights and remedies of the Lenders and the Administrative
Agent under any of the Basic Documents.
"NASD" shall mean the National Association of Securities
Dealers.
"NOTICE OF DEMAND REGISTRATION" shall have the meaning
assigned thereto in Section 7.01(a) hereof.
"NOTICE OF PIGGYBACK REGISTRATION" shall have the meaning
assigned thereto in Section 7.02(a) hereof.
"PIGGYBACK REGISTRATION" shall mean any registration of equity
securities of State Auto Financial under the Securities Act (other than a
registration in respect of a dividend reinvestment or similar plan for
stockholders of State Auto Financial or on Form S-4 or Form S-8 promulgated by
the Commission, or any successor or similar forms thereto), whether for sale for
the account of State Auto Financial or for the account of any holder of
securities of State Auto Financial (other than Registrable Securities).
"PROPERTY" shall mean any right or interest in or to property
of any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"PUBLIC OFFERING" shall mean any offering of any equity
securities of State Auto Financial to the public, either on behalf of State Auto
Financial or any of its securityholders, pursuant to an effective registration
statement under the Securities Act.
<PAGE> 9
- 8 -
"PURCHASE COMMITMENT" shall mean the obligation of the Company
to purchase Class A Preferred Stock with an aggregate original Redemption Value
of not more than $100,000,000.
"PURCHASE COMMITMENT TERMINATION DATE" shall mean June 30,
1997, provided that if the "Commitment Termination Date" under the Credit
Agreement is extended as provided therein, the Purchase Commitment Termination
Date shall, automatically and without any action on the part of State Auto
Financial or the Company, be extended to the date to which said "Commitment
Termination Date" has been so extended.
"PURCHASE DATE" shall have the meaning assigned thereto in
Section 2.02 hereof.
"PURCHASE NOTICE" shall mean a Purchase Notice substantially
in the form of Exhibit B hereto.
"PUT AGREEMENT" shall mean the Put Agreement, dated as of the
date hereof, among State Auto Mutual, State Auto Financial and the
Administrative Agent, as modified and supplemented and in effect from time to
time.
"PUT DISHONOR" shall mean the failure of State Auto Mutual for
any reason after its receipt of a Put Notice (as defined in the Put Agreement)
to comply with its obligations under the Put Agreement to purchase each Lender's
Loans, Notes and Commitment (each, as defined in the Put Agreement) or the Class
A Preferred Stock, as specified in such Put Notice.
"PUT EVENT" shall have the meaning assigned thereto in the
Put Agreement.
"QUARTERLY DATES" shall mean the last Business Day of March,
June, September and December in each year, the first of which shall be the first
such day after the day hereof.
"RECORDS" shall have the meaning assigned thereto in Section
7.03(j) hereof.
"REDEMPTION VALUE" shall mean, with respect to any Class A
Preferred Stock, the "Redemption Value" for such Class A Preferred Stock set
forth in the certificate evidencing such Class A Preferred Stock.
"REGISTRABLE SECURITIES" shall mean (i) any shares of Class A
Preferred Stock purchased pursuant to Section 2.01 hereof and (ii) any
additional shares of Class A Preferred Stock issued or distributed by way of a
dividend, stock split or other distribution in respect of such Class A Preferred
Stock purchased pursuant to Section 2.01 hereof, or acquired by way of any
rights offering or similar offering made in respect of such Class A Preferred
Stock. As to any particular Registrable Securities, once issued such securities
shall cease to be Registrable Securities when (i) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (ii) they shall have been distributed to the
public pursuant to Rule 144 or (iii) they shall have ceased to be outstanding.
"REGISTRATION EXPENSES" shall mean all expenses incident to
State Auto Financial's performance of or compliance with its obligations under
this Agreement to effect the registration of Registrable Securities in a Demand
Registration or a Piggyback Registration, including, without limitation, all
registration, filing, securities exchange listing and NASD fees, all
registration, filing, qualification and other fees and expenses of complying
with securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and
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disbursements of counsel for State Auto Financial and of its independent public
accountants, including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, the
reasonable fees and disbursements of a single counsel and single firm of
accountants retained by the holders of a majority of the Registrable Securities
being registered, premiums and other costs of policies of insurance against
liabilities arising out of the Public Offering of the Registrable Securities
being registered and any fees and disbursements of underwriters customarily paid
by issuers or sellers of securities, but excluding underwriting discounts and
commissions and transfer taxes, if any, in respect of Registrable Securities,
which shall be payable by each holder thereof.
"REGISTRATION REQUEST" shall have the meaning assigned thereto
in Section 7.01 hereof.
"REQUESTING HOLDERS" shall mean, with respect to any Demand
Registration or Piggyback Registration, the holders of Registrable Securities
requesting to have Registrable Securities included in such registration in
accordance with this Agreement.
"RULE 144" shall mean Rule 144 promulgated by the Commission
under the Securities Act, and any successor provision thereto.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"SHORT-FORM REGISTRATION" shall mean a Demand Registration
effected by the filing of a registration statement on Form S-2 or Form S-3 with
the Commission.
"STATE AUTO MUTUAL" shall mean the meaning assigned thereto in
the first Whereas clause of this Agreement.
"STATE AUTO P&C" shall mean the meaning assigned thereto in
the first Whereas clause of this Agreement.
"SUBSIDIARY" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.
Section 2. PURCHASE OF PREFERRED STOCK.
2.01 PURCHASES. The Company agrees, on the terms and
conditions of this Agreement, to purchase in one or more transactions, Class A
Preferred Stock with an aggregate Redemption Value of not more than
$100,000,000. The purchase price payable by the Company for each share of Class
A Preferred Stock shall be equal to the Redemption Value thereof.
2.02 NOTICES OF PURCHASES. State Auto Financial shall give the
Company notice of each purchase hereunder by delivering to the Company a
Purchase Notice not less than four Business Days prior to the date of such
purchase (the "Purchase Date"). Not later than 2:00 p.m. New York time on the
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Purchase Date specified for each such purchase, the Company shall make available
the amount of the purchase price of the Class A Preferred Stock to be purchased
by it by depositing in immediately available funds such purchase price in an
account designated by State Auto Financial.
2.03 COMMITMENT FEE. State Auto Financial shall pay to the
Company a commitment fee on the daily average unused amount (based on the
aggregate Redemption Value of not more than $100,000,000 of Class A Preferred
Stock) of the Company's Purchase Commitment, for the period from and including
the date hereof to but not including the earlier of the date such Purchase
Commitment is terminated and the Purchase Commitment Termination Date, at a rate
per annum equal to 1/4 of 1%. Accrued commitment fee shall be payable on each
Quarterly Date and on the earlier of the date the Purchase Commitments are
terminated and the Purchase Commitment Termination Date.
Section 3. CONDITIONS TO PURCHASE. The obligation of the
Company to purchase any Class A Preferred Stock hereunder is subject to the
following conditions:
(a) PURCHASE NOTICE. The Company shall have received a
Purchase Notice with respect to such purchase, duly completed and
executed.
(b) OPINION OF COUNSEL TO THE COMPANY. The Company shall have
received an opinion, dated the Purchase Date, of John Lowther, general
counsel of State Auto Financial, substantially in the form of Exhibit C
hereto and covering such other matters as the Company may reasonably
request.
(c) CERTIFICATES. The Company shall have received duly
executed stock certificates, substantially in the form of Exhibit A
hereto, evidencing the aggregate number of shares of Class A Preferred
Stock to be purchased by the Company on such Purchase Date.
(d) MINIMUM CATASTROPHIC LOSS. Any one or more of State Auto
Mutual, State Auto P&C, Milbank Insurance Company and State Auto
National Insurance Company shall have incurred liability in excess of
$120,000,000 in the aggregate in respect of catastrophic loss claims
and/or loss adjustment expenses resulting from the occurrence of a
single catastrophic event and the Company shall have received a
certificate of a senior financial officer of State Auto Financial to
such effect.
(e) OFFICER'S CERTIFICATE. The Company shall have received a
certificate of a senior financial officer of State Auto Financial to
the effect that, both immediately prior to such purchase and also after
giving effect thereto and to the intended use thereof (i) no Put Event
(or an event with notice or lapse of time or both would become a Put
Event) shall have occurred and be continuing; and (ii) the
representations and warranties made by State Auto Financial in Section
4 hereof shall be true and complete on and as of the date of such
purchase with the same force and effect as if made on and as of such
date (or, if any such representation or warranty is expressly stated to
have been made as of a specific date, as of such specific date).
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Section 4. REPRESENTATIONS AND WARRANTIES OF STATE AUTO
FINANCIAL. State Auto Financial represents and warrants to the Company that:
4.01 CORPORATE EXISTENCE. Each of State Auto Financial and its
Subsidiaries: (a) is a corporation, partnership or other entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization; (b) has all requisite corporate or other power, and has all
material governmental licenses, authorizations, consents and approvals necessary
to own its assets and carry on its business as now being or as proposed to be
conducted; and (c) is qualified to do business and is in good standing in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify could (either
individually or in the aggregate) have a Material Adverse Effect.
4.02 LITIGATION. There are no legal or arbitral proceedings,
or any proceedings by or before any governmental or regulatory authority or
agency, now pending or (to the knowledge of State Auto Financial) threatened
against State Auto Financial or any of its Subsidiaries that, if adversely
determined could (either individually or in the aggregate) have a Material
Adverse Effect.
4.03 NO BREACH. None of the execution and delivery of this
Agreement, the consummation of the transactions herein and therein contemplated
or compliance with the terms and provisions hereof and thereof (including
issuance of the Class A Preferred Stock) will conflict with or result in a
breach of, or require any consent under, the charter or by-laws (or equivalent
documents) of State Auto Financial, or any applicable law or regulation, or any
order, writ, injunction or decree of any court or governmental authority or
agency, or any agreement or instrument to which State Auto Financial or any of
its Subsidiaries is a party or by which any of them or any of their Property is
bound or to which any of them is subject, or constitute a default under any such
agreement or instrument, or result in the creation or imposition of any Lien
upon any Property of State Auto Financial or any of its Subsidiaries pursuant to
the terms of any such agreement or instrument.
4.04 ACTION. State Auto Financial has all necessary corporate
power, authority and legal right to execute, deliver and perform its obligations
under this Agreement and to issue the Class A Preferred Stock; the execution,
delivery and performance by State Auto Financial of this Agreement (and the
issuance of the Class A Preferred Stock) have been duly authorized by all
necessary corporate action on its part (including, without limitation, any
required shareholder approvals); and this Agreement has been duly and validly
executed and delivered by State Auto Financial and constitutes, its legal, valid
and binding obligation, enforceable against State Auto Financial in accordance
with its terms, except as such enforceability may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws of general applicability
affecting the enforcement of creditors' rights and (b) the application of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.05 APPROVALS. No authorizations, approvals or consents of,
and no filings or registrations with, any governmental or regulatory authority
or agency, or any securities exchange (other than any authorizations, approvals,
consents, filings and registrations heretofore duly made or obtained and in full
force and effect), are necessary for the execution, delivery or performance by
State Auto Financial of this Agreement (or for the issuance of the Class A
Preferred Stock) or for the legality, validity or enforceability hereof.
4.06 CAPITALIZATION. The authorized capital stock of State
Auto Financial consists, on the date hereof, of an aggregate of 35,000,000
shares consisting of (a) 30,000,000 shares of common stock, no par value, of
which 18,086,863 shares are duly and validly issued and outstanding, each of
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which shares is fully paid and nonassessable, (b) 2,500,000 shares of Class A
Preferred Stock, no par value, none of which shares issued and outstanding and
(c) 2,500,000 shares of Class B Preferred Stock, no par value, none of which
shares are issued and outstanding. As of the date hereof, 67% of such issued and
outstanding shares of common stock are owned beneficially and of record by State
Auto Mutual. As of the date hereof, (i) except for this Agreement, the Put
Agreement and as set forth in Part A of Schedule I hereto, there are no
outstanding Equity Rights with respect to State Auto Financial and (ii) except
as set forth in Part B of Schedule I hereto, there are no outstanding
obligations of State Auto Financial or any of its Subsidiaries to repurchase,
redeem, or otherwise acquire any shares of capital stock of State Auto Financial
nor are there any outstanding obligations of State Auto Financial or any of its
Subsidiaries to make payments to any Person, such as "phantom stock" payments,
where the amount thereof is calculated with reference to the fair market value
or equity value of State Auto Financial or any of its Subsidiaries. All shares
of Class A Preferred Stock purchased by the Company hereunder will, when so
purchased, be duly and validly issued and outstanding, fully paid and
nonassessable.
4.07 TRUE AND COMPLETE DISCLOSURE. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of State Auto Financial and State Auto Mutual to the Company, the
Administrative Agent or any Lender in connection with the negotiation,
preparation or delivery of this Agreement and the other Basic Documents or
included herein or therein or delivered pursuant hereto or thereto, when taken
as a whole do not contain any untrue statement of material fact or omit to state
any material fact necessary to make the statements herein or therein, in light
of the circumstances under which they were made, not misleading. All written
information furnished after the date hereof by State Auto Mutual and its
Subsidiaries to the Company, the Administrative Agent and the Lenders in
connection with this Agreement and the other Basic Documents and the
transactions contemplated hereby and thereby will be true, complete and accurate
in every material respect, or (in the case of projections) based on reasonable
estimates, on the date as of which such information is stated or certified.
There is no fact known to State Auto Financial that could have a Material
Adverse Effect that has not been disclosed herein, in the other Basic Documents
or in a report, financial statement, exhibit, schedule, disclosure letter or
other writing furnished to the Administrative Agent for use in connection with
the transactions contemplated hereby or thereby.
Section 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to State Auto Financial that:
5.01 INVESTMENT. The Company will purchase the Class A
Preferred Stock only for its own account, for investment purposes and not with a
view to resale or distribution, and not on behalf of any other person or entity.
5.02 NO AGREEMENT TO TRANSFER. Except as set forth in this
Agreement, the Credit Agreement, the Put Agreement and the Company Pledge
Agreement, the Company is not a party to any agreement, arrangement or
understanding concerning the transfer of the Class A Preferred Stock or any
interest therein to any other person or entity.
5.03 KNOWLEDGE AND EXPERIENCE. The Company has (a) adequate
knowledge and experience in financial and business matters to be able to
evaluate the merits and risks of its investment in State Auto Financial and the
Class A Preferred Stock under this Agreement, or (b) the advice or
representation of a person or entity having such knowledge and experience.
5.04 ACCESS TO INFORMATION. The Company has access to
sufficient information regarding State Auto Financial, including, without
limitation, State Auto Financial's filings under the
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Securities Exchange Act of 1934, as amended. The Company has requested
information concerning State Auto Financial and has been given an opportunity to
ask questions and receive answers concerning State Auto Financial and the terms
and conditions of this Agreement in order to evaluate the merits and risks of
its investment in State Auto Financial and the Class A Preferred Stock under
this Agreement.
5.05 RISK. The Company is able to bear the economic risk of
its investment in State Auto Financial and the Class A Preferred Stock under
this Agreement and to hold the Class A Preferred Stock for purposes of
investment.
5.06 RESTRICTIONS ON TRANSFER.
(a) The Class A Preferred Stock which the Company will acquire
hereunder (i) will not be registered by reason of an exemption from registration
under Section 3(b) or 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), or Regulation D promulgated thereunder and (ii) is not
publicly traded, no market exists for the Class A Preferred Stock and the
Company must hold the Class A Preferred Stock indefinitely unless a subsequent
transfer or other disposition is registered under the Securities Act or is
exempt from registration at the time of such transfer or other disposition.
(b) In the absence of an effective registration with respect
to any proposed transfer of the Class A Preferred Stock (other than any transfer
thereof as contemplated by the Company Pledge Agreement or the Put Agreement),
State Auto Financial may require, as a condition to such transfer, a legal
opinion by counsel of its choice, in form and substance as it may determine, or
other documentation satisfactory to its Board of Directors, that an exemption
from registration is available for the proposed transfer, and a restrictive
legend to that effect will be set forth on the stock certificates representing
the Class A Preferred Stock.
Section 6. COVENANTS.
6.01 TRANSFER. Except as contemplated by the Company Pledge
Agreement and the Put Agreement, the Company shall not sell, offer for sale or
otherwise transfer or dispose of the Class A Preferred Stock or any interest
therein, unless pursuant to a registration or exemption from registration under
the Securities Act and all applicable state securities laws then in effect.
6.02 REDEMPTION. State Auto Financial shall redeem the Class A
Preferred Stock at the times, in the amounts, at the prices and on such other
terms and conditions as are described in the stock certificates evidencing such
Class A Preferred Stock.
6.03 USE OF PROCEEDS. State Auto Financial shall use the
proceeds of the sale of Class A Preferred Stock hereunder solely for the purpose
of contributing such proceeds to State Auto P&C for it to use to pay direct and
assumed catastrophic loss claims and/or loss adjustment expenses resulting from
the catastrophic event to which such sale relates.
Section 7. REGISTRATION RIGHTS.
7.01 DEMAND REGISTRATION.
(a) DEMAND REGISTRATION. At any time after the occurrence of a
Put Dishonor, upon the written request of the holders of a majority of the
Registrable Securities requesting that State Auto
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Financial effect the registration under the Securities Act of all or part of
such holders' Registrable Securities and specifying the number of Registrable
Securities to be registered and the intended method of disposition thereof (a
"REGISTRATION REQUEST"), State Auto Financial will promptly, and in no event
more than 10 Business Days after receipt of such Registration Request, give
written notice (a "NOTICE OF DEMAND REGISTRATION") of such request to all other
holders of Registrable Securities, and thereupon will use its best efforts to
effect the registration under the Securities Act of:
(i) the Registrable Securities which State Auto Financial has
been so requested to register by such holders of a majority of the
Registrable Securities; and
(ii) all other Registrable Securities the holders of which have
made written requests to State Auto Financial for registration thereof
within 20 days after the giving of the Notice of Demand Registration
(which requests shall specify the intended method of disposition
thereof),
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof) of the Registrable Securities so to be registered. If
requested by the holders of a majority of the Registrable Securities requested
to be included in any Demand Registration, the method of disposition of all
Registrable Securities included in such registration shall be an underwritten
offering effected in accordance with Section 7.04(a) hereof. Subject to
paragraph (e) of this Section 7.01, State Auto Financial may include in such
registration other securities for sale for its own account or for the account of
any other Person. If any security holders of State Auto Financial (other than
the holders of Registrable Securities in such capacity) register securities of
State Auto Financial in a Demand Registration in accordance with this Section
7.01, such holders shall pay the fees and expenses of their counsel and their
pro rata share, on the basis of the respective amounts of the securities
included in such registration on behalf of each such holder, of the Registration
Expenses if the Registration Expenses for such registration are not paid by
State Auto Financial for any reason.
(b) LIMITATIONS ON DEMAND REGISTRATIONS. Notwithstanding
anything herein to the contrary, State Auto Financial shall not be required to
honor a request for a Demand Registration if:
(i) a Put Dishonor shall not have occurred;
(ii) in the case of a Long-Form Registration, State Auto
Financial has previously effected one Effective Long-Form Registration;
(iii) in the case of a Short-Form Registration, State Auto
Financial has previously effected one Effective Short-Form
Registration; or
(iv) such request is received by State Auto Financial less than
90 days following the effective date of any previous registration
statement filed in connection with a Demand Registration, regardless of
whether any holder of Registrable Securities exercised its rights under
this Agreement with respect to such registration.
(c) REGISTRATION STATEMENT FORM. Demand Registrations shall be
on such appropriate registration form promulgated by the Commission as shall be
selected by State Auto Financial, and shall
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be reasonably acceptable to the holders of a majority of the Registrable
Securities to which such registration relates, and shall permit the disposition
of such Registrable Securities in accordance with the intended method or methods
specified in their request for such registration, PROVIDED that such
registration form is available under the terms of this Agreement.
Notwithstanding the forgoing, if State Auto Financial selects a Form S-3 and the
use of such form is available under the terms of this Agreement and is permitted
by law, the holders of a majority of the Registrable Securities to which such
registration relates may notify State Auto Financial in writing that, in the
judgment of such holders (or, if applicable, the Managing Underwriter), the
inclusion of some or all of the information required in a more detailed form
specified in such notice is of material importance to the success of the Public
Offering of such Registrable Securities, in which case State Auto Financial
shall supplement or amend the Form S-3 to include such information.
(d) REGISTRATION EXPENSES. State Auto Financial will pay all
Registration Expenses incurred in connection with any Demand Registration.
(e) PRIORITY IN CUTBACK REGISTRATIONS. If a Demand
Registration becomes a Cutback Registration, State Auto Financial will include
in any such registration to the extent of the number which the Managing
Underwriter advises State Auto Financial can be sold in such offering (i) FIRST,
Registrable Securities requested to be included in such registration by the
Requesting Holders, pro rata on the basis of the number of Registrable
Securities requested to be included by such holders and (ii) SECOND, other
securities of State Auto Financial proposed to be included in such registration,
allocated among the holders thereof in accordance with the priorities then
existing among State Auto Financial and the holders of such other securities;
and any securities so excluded shall be withdrawn from and shall not be included
in such Demand Registration.
7.02 PIGGYBACK REGISTRATIONS.
(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If, at any time
after the occurrence of a Put Dishonor, State Auto Financial at any time
proposes after any shares of Class A Preferred Stock have been purchased
hereunder to effect a Piggyback Registration, it will each such time give prompt
written notice (a "NOTICE OF PIGGYBACK REGISTRATION"), at least 30 days prior to
the anticipated filing date, to all holders of Registrable Securities of its
intention to do so and of such holders' rights under this Section 7.02, which
Notice of Piggyback Registration shall include a description of the intended
method of disposition of such securities. Upon the written request of any such
holder made within 15 days after receipt of a Notice of Piggyback Registration
(which request shall specify the Registrable Securities intended to be disposed
of by such holder and the intended method of disposition thereof), State Auto
Financial will use its best efforts to include in the registration statement
relating to such Piggyback Registration all Registrable Securities which State
Auto Financial has been so requested to register. Notwithstanding the foregoing,
if, at any time after giving a Notice of Piggyback Registration and prior to the
effective date of the registration statement filed in connection with such
registration, State Auto Financial shall determine for any reason not to
register or to delay registration of such securities, State Auto Financial may,
at its election, give written notice of such determination to each holder of
Registrable Securities and, thereupon, (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to
pay the Registration Expenses in connection therewith), without prejudice,
however, to the rights of any Requesting Holder entitled to do so to request
that such registration be effected as a Demand Registration under Section 7.01
hereof, and (ii) in the case of a determination to delay registering, shall be
permitted to delay registering any Registrable Securities for the same period as
the delay in registering such other securities. No registration effected under
this Section 7.02 shall relieve State Auto Financial of its obligations to
effect a Demand Registration under Section 7.01 hereof.
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(b) REGISTRATION EXPENSES. State Auto Financial will pay all
Registration Expenses incurred in connection with each Piggyback Registration.
(c) PRIORITY IN CUTBACK REGISTRATIONS. If a Piggyback
Registration becomes a Cutback Registration, State Auto Financial will include
in such registration to the extent of the amount of the securities which the
Managing Underwriter advises State Auto Financial can be sold in such offering:
(i) if such registration as initially proposed by State Auto
Financial was solely a primary registration of its securities, (x)
FIRST, the securities proposed by State Auto Financial to be sold for
its own account, and (y) SECOND, any Registrable Securities requested
to be included in such registration by Requesting Holders, PRO RATA on
the basis of the number of Registrable Securities requested to be
included by such holders, and (z) THIRD, any other securities of State
Auto Financial proposed to be included in such registration, allocated
among the holders thereof in accordance with the priorities then
existing among State Auto Financial and such holders; and
(ii) if such registration as initially proposed by State Auto
Financial was in whole or in part requested by holders of securities of
State Auto Financial, other than holders of Registrable Securities in
their capacities as such, pursuant to demand registration rights, (x)
FIRST, such securities held by the holders initiating such registration
and, if applicable, any securities proposed by State Auto Financial to
be sold for its own account, allocated in accordance with the
priorities then existing among State Auto Financial and such holders,
and (y) SECOND, any Registrable Securities requested to be included in
such registration by Requesting Holders, pro rata on the basis of the
number of Registrable Securities requested to be included by such
holders, and (z) THIRD, any other securities of State Auto Financial
proposed to be included in such registration, allocated among the
holders thereof in accordance with the priorities then existing among
State Auto Financial and the holders of such other securities;
and any securities so excluded shall be withdrawn from and shall not be included
in such Piggyback Registration.
7.03 REGISTRATION PROCEDURES. If and whenever State Auto
Financial is required to use its best efforts to effect the registration of any
Registrable Securities under the Securities Act pursuant to Section 7.01 or 7.02
hereof, State Auto Financial will use its best efforts to effect the
registration and sale of such Registrable Securities in accordance with the
intended methods of disposition thereof specified by the Requesting Holders.
Without limiting the foregoing, State Auto Financial in each such case will, as
expeditiously as possible:
(a) prepare and file with the Commission the requisite
registration statement to effect such registration and use its best
efforts to cause such registration statement to become effective as
soon as practicable, PROVIDED that as far in advance as practical
before filing such registration statement or any amendment or
supplement thereto, State Auto Financial will furnish to the Requesting
Holders copies of reasonably complete drafts of all such documents
proposed to be filed (including exhibits), and any such holder shall
have the opportunity to object to any information pertaining solely to
such holder that is contained therein and State Auto Financial will
make the corrections reasonably requested by such holder with respect
to such information prior to filing any such registration statement or
amendment;
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(b) prepare and file with the Commission such amendments and
supplements to such registration statement and any prospectus used in
connection therewith as may be necessary to maintain the effectiveness
of such registration statement and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable
Securities covered by such registration statement, in accordance
with the intended methods of disposition thereof, until the earlier of
(i) such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the seller or
sellers thereof set forth in such registration statement and (ii) 180
days after such registration statement becomes effective;
(c) promptly notify each Requesting Holder and the
underwriter or underwriters, if any:
(i) when such registration statement or any prospectus
used in connection therewith, or any amendment or supplement
thereto, has been filed and, with respect to such registration
statement or any post-effective amendment thereto, when the
same has become effective;
(ii) of any written request by the Commission for
amendments or supplements to such registration statement or
prospectus;
(iii) of the notification to State Auto Financial by the
Commission of its initiation of any proceeding with respect to
the issuance by the Commission of, or of the issuance by the
Commission of, any stop order suspending the effectiveness of
such registration statement (and State Auto Financial shall
promptly attempt to have such order withdrawn); and
(iv) of the receipt by State Auto Financial of any
notification with respect to the suspension of the
qualification of any Registrable Securities for sale under the
applicable securities or blue sky laws of any jurisdiction;
(d) furnish to each seller of Registrable Securities covered
by such registration statement such number of conformed copies of such
registration statement and of each amendment and supplement thereto (in
each case including all exhibits and documents incorporated by
reference), such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed under Rule 424
promulgated under the Securities Act relating to such holder's
Registrable Securities, and such other documents, as such seller may
reasonably request to facilitate the disposition of its Registrable
Securities;
(e) use its best efforts to register or qualify all
Registrable Securities covered by such
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registration statement under such other securities or blue sky
laws of such jurisdictions as each holder thereof shall reasonably
request, to keep such registration or qualification in effect for so
long as such registration statement remains in effect, and take any
other action which may be reasonably necessary or advisable to enable
such holder to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such holder, except that State Auto
Financial shall not for any such purpose be required (i) to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this paragraph (e) be
obligated to be so qualified, (ii) to subject itself to taxation in any
such jurisdiction or (iii) to consent to general service of process in
any jurisdiction;
(f) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable each holder thereof to consummate the disposition
of such Registrable Securities;
(g) furnish to each Requesting Holder a signed counterpart,
addressed to such holder (and the underwriters, if any), of
(i) an opinion of counsel for State Auto Financial,
dated the effective date of such registration statement (or,
if such registration includes an underwritten Public Offering,
dated the date of any closing under the underwriting
agreement), reasonably satisfactory in form and substance to
such holder, and
(ii) a "comfort" letter, dated the effective date of
such registration statement (and, if such registration
includes an underwritten Public Offering, dated the date of
any closing under the underwriting agreement), signed by the
independent public accountants who have certified State Auto
Financial's financial statements included in such registration
statement,
in each case covering substantially the same matters with respect to
such registration statement (and the prospectus included therein) and,
in the case of the accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters
delivered to the underwriters in underwritten Public Offerings of
securities and, in the case of the accountants' letter, such other
financial matters, as such holder (or the underwriters, if any) may
reasonably request;
(h) notify each holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which any prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, and at the
<PAGE> 20
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request of any such holder promptly prepare and furnish to such holder
a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(i) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its securityholders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve (12) months, but not
more than eighteen (18) months, beginning with the first full calendar
month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder;
(j) make available for inspection by any Requesting Holder,
any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent
retained by any such seller or underwriter (collectively, the
"INSPECTORS"), all financial and other records, pertinent corporate
documents and properties of State Auto Financial (collectively, the
"RECORDS") as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause State Auto Financial's
officers, directors and employees to supply all information reasonably
requested by any such Inspector in connection with such registration
statement, and permit the Inspectors to participate in the preparation
of such registration statement and any prospectus contained therein and
any amendment or supplement thereto. Records which State Auto Financial
determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors
unless (i) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in the registration statement, (ii)
the release of such Records is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction or (iii) the information
in such Records has been made generally available to the public. The
seller of Registrable Securities agrees by acquisition of such
Registrable Securities that it will, upon learning that disclosure of
such Records is sought in a court of competent jurisdiction, give
notice to State Auto Financial and allow State Auto Financial, at State
Auto Financial's expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
(k) provide a transfer agent and registrar for all Registrable
Securities covered by such registration statement not later than the
effective date of such registration statement; and
(l) use its best efforts to cause all Registrable Securities
covered by such registration statement to be listed, upon official
notice of issuance, on any securities exchange on which any of the
securities of the same class as the Registrable Securities are then
listed.
State Auto Financial may require each holder of Registrable
Securities as to which any registration is being effected to, and each such
holder, as a condition to including Registrable Securities in such registration,
shall, furnish State Auto Financial with such information and affidavits
regarding such holder and the distribution of such securities as State Auto
Financial may from time to time reasonably request in writing in connection with
such registration.
<PAGE> 21
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Each holder of Registrable Securities agrees by acquisition of
such Registrable Securities that upon receipt of any notice from State Auto
Financial of the happening of any event of the kind described in paragraph (h)
of this Section 7.03, such holder will forthwith discontinue such holder's
disposition of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until such holder's receipt of the
copies of the supplemented or amended prospectus contemplated by such paragraph
(h) and, if so directed by State Auto Financial, will deliver to State Auto
Financial (at State Auto Financial's expense) all copies, other than permanent
file copies, then in such holder's possession of the prospectus relating to such
Registrable Securities current at the time of receipt of such notice. In the
event State Auto Financial shall give any such notice, the period referred to in
paragraph (b) of this Section 7.03 shall be extended by a number of days equal
to the number of days during the period from and including the giving of notice
pursuant to paragraph (h) of this Section 7.03 and to and including the date
when each holder of any Registrable Securities covered by such registration
statement shall receive the copies of the supplemented or amended prospectus
contemplated by such paragraph (h).
7.04 UNDERWRITTEN OFFERINGS.
(a) UNDERWRITTEN DEMAND OFFERINGS. In the case of any
underwritten Public Offering being effected pursuant to a Demand Registration,
the Managing Underwriter and any other underwriter or underwriters with respect
to such offering shall be selected, after consultation with State Auto
Financial, by the holders of a majority of the Registrable Securities to be
included in such underwritten offering with the consent of State Auto Financial,
which consent shall not be unreasonably withheld. State Auto Financial shall
enter into an underwriting agreement in customary form with such underwriter or
underwriters, which shall include, among other provisions, indemnities to the
effect and to the extent provided in Section 7.06 hereof and shall take all such
other actions as are reasonably requested by the Managing Underwriter in order
to expedite or facilitate the registration and disposition of the Registrable
Securities. The holders of Registrable Securities to be distributed by such
underwriters shall be parties to such underwriting agreement and may, at their
option, require that any or all of the representations and warranties by, and
the other agreements on the part of, State Auto Financial to and for the benefit
of such underwriters also be made to and for their benefit and that any or all
of the conditions precedent to the obligations of such underwriters under such
underwriting agreement also be conditions precedent to their obligations. No
holder of Registrable Securities shall be required to make any representations
or warranties to or agreements with State Auto Financial or the underwriters
other than representations, warranties or agreements regarding such holder and
its ownership of the securities being registered on its behalf and such holder's
intended method of distribution and any other representation required by law. No
Requesting Holder may participate in such underwritten offering unless such
holder agrees to sell its Registrable Securities on the basis provided in such
underwriting agreement and completes and executes all questionnaires, powers of
attorney, indemnities and other documents reasonably required under the terms of
such underwriting agreement. If any Requesting Holder disapproves of the terms
of an underwriting, such holder may elect to withdraw therefrom and from such
registration by notice to State Auto Financial and the Managing Underwriter, and
each of the remaining Requesting Holders shall be entitled to increase the
number of Registrable Securities being registered to the extent of the
Registrable Securities so withdrawn in the proportion which the number of
Registrable Securities being registered by such remaining Requesting Holder
bears to the total number of Registrable Securities being registered by all such
remaining Requesting Holders.
(b) UNDERWRITTEN PIGGYBACK OFFERINGS. If State Auto Financial
at any time proposes to register any of its securities in a Piggyback
Registration and such securities are to be distributed by or through one or more
underwriters, State Auto Financial will, subject to the provisions of Section
7.02(c)
<PAGE> 22
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hereof, use its best efforts, if requested by any holder of Registrable
Securities, to arrange for such underwriters to include the Registrable
Securities to be offered and sold by such holder among the securities to be
distributed by such underwriters, and such holders shall be obligated to sell
their Registrable Securities in such Piggyback Registration through such
underwriters on the same terms and conditions as apply to the other Company
securities to be sold by such underwriters in connection with such Piggyback
Registration. The holders of Registrable Securities to be distributed by such
underwriters shall be parties to the underwriting agreement between State Auto
Financial and such underwriter or underwriters and may, at their option, require
that any or all of the representations and warranties by, and the other
agreements on the part of, State Auto Financial to and for the benefit of such
underwriters also be made to and for their benefit and that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement also be conditions precedent to their obligations. No
holder of Registrable Securities shall be required to make any representations
or warranties to or agreements with State Auto Financial or the underwriters
other than representations, warranties or agreements regarding such holder and
its ownership of the securities being registered on its behalf and such holder's
intended method of distribution and any other representation required by law. No
Requesting Holder may participate in such underwritten offering unless such
holder agrees to sell its Registrable Securities on the basis provided in such
underwriting agreement and completes and executes all questionnaires, powers of
attorney, indemnities and other documents reasonably required under the terms of
such underwriting agreement. If any Requesting Holder disapproves of the terms
of an underwriting, such holder may elect to withdraw therefrom and from such
registration by notice to State Auto Financial and the Managing Underwriter, and
each of the remaining Requesting Holders shall be entitled to increase the
number of Registrable Securities being registered to the extent of the
Registrable Securities so withdrawn in the proportion which the number of
Registrable Securities being registered by such remaining Requesting Holder
bears to the total number of Registrable Securities being registered by all such
remaining Requesting Holders.
7.05 HOLDBACK AGREEMENTS BY STATE AUTO FINANCIAL AND OTHER
SECURITYHOLDERS. Unless the Managing Underwriter otherwise agrees, State Auto
Financial and each holder of Registrable Securities agrees not to effect any
public sale or distribution of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities, during the
14 days prior to and the 180 days after the effective date of the registration
statement filed in connection with an underwritten offering made pursuant to a
Demand Registration (or for such shorter period of time as is sufficient and
appropriate, in the opinion of the Managing Underwriter, in order to complete
the sale and distribution of the securities included in such registration),
except as part of such underwritten registration and except pursuant to
registrations on Form S-4 or Form S-8 promulgated by the Commission or any
successor or similar forms thereto. State Auto Financial also agrees, unless the
Managing Underwriter otherwise agrees, to cause each holder of its equity
securities which is a party to a registration rights agreement with State Auto
Financial entered into on or after the date hereof, and each holder of its
equity securities, or of any securities convertible into or exchangeable or
exercisable for such securities, in each case purchased from State Auto
Financial, at any time after the date of this Agreement (other than in a Public
Offering), to agree, to the extent permitted by law, not to effect any such
public sale or distribution of such securities (including a sale under Rule
144), during such period, except as part of such underwritten registration.
7.06 INDEMNIFICATION
(a) INDEMNIFICATION BY STATE AUTO FINANCIAL. State Auto
Financial shall, to the full extent permitted by law, indemnify and hold
harmless each seller of Registrable Securities included in any registration
statement filed in connection with a Demand Registration or a Piggyback
Registration, its directors and officers, and each other Person, if any, who
controls any such seller within the meaning
<PAGE> 23
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of the Securities Act, against any Losses, claims, damages, expenses or
liabilities, joint or several (together, "LOSSES"), to which such seller or any
such director or officer or controlling Person may become subject under the
Securities Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) not misleading, and State Auto Financial will reimburse
such seller and each such director, officer and controlling Person for any legal
or any other expenses reasonably incurred by them in connection with
investigating or defending any such Loss (or action or proceeding in respect
thereof); PROVIDED that State Auto Financial shall not be liable in any such
case to the extent that any such Loss (or action or proceeding in respect
thereof) arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with written
information furnished to State Auto Financial through an instrument duly
executed by such seller specifically stating that it is for use in the
preparation thereof. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller or any such
director, officer or controlling Person, and shall survive the transfer of such
securities by such seller. State Auto Financial shall also indemnify each other
Person who participates (including as an underwriter) in the offering or sale of
Registrable Securities, their officers and directors and each other Person, if
any, who controls any such participating Person within the meaning of the
Securities Act to the same extent as provided above with respect to sellers of
Registrable Securities.
(b) INDEMNIFICATION BY THE SELLERS. Each holder of Registrable
Securities which are included or are to be included in any registration
statement filed in connection with a Demand Registration or a Piggyback
Registration, as a condition to including Registrable Securities in such
registration statement, shall, to the full extent permitted by law, indemnify
and hold harmless State Auto Financial, its directors and officers, and each
other Person, if any, who controls State Auto Financial within the meaning of
the Securities Act, against any Losses to which State Auto Financial or any such
director or officer or controlling Person may become subject under the
Securities Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) not misleading, if such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to State Auto Financial through an
instrument duly executed by such seller specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement; PROVIDED, HOWEVER, that
the obligation to provide indemnification pursuant to this Section 7.06(b) shall
be several, and not joint and several, among such Indemnifying Parties on the
basis of the number of Registrable Securities included in such registration
statement and the aggregate amount which may be recovered from any holder of
Registrable Securities pursuant to the indemnification provided for in this
Section 7.06(b) in connection with any registration and sale of Registrable
Securities shall be limited to the total proceeds received by such holder from
the sale of such Registrable Securities. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of State
Auto Financial or any such director, officer
<PAGE> 24
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or controlling Person and shall survive the transfer of such securities by such
seller. Such holders shall also indemnify each other Person who participates
(including as an underwriter) in the offering or sale of Registrable Securities,
their officers and directors and each other Person, if any, who controls any
such participating Person within the meaning of the Securities Act to the same
extent as provided above with respect to State Auto Financial.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
Indemnified Party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding paragraph (a) or (b) of this
Section 7.06, such Indemnified Party will, if a claim in respect thereof is to
be made against an Indemnifying Party pursuant to such paragraphs, give written
notice to the latter of the commencement of such action, PROVIDED that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under the preceding paragraphs
of this Section 7.06, except to the extent that the Indemnifying Party is
actually prejudiced by such failure to give notice. In case any such action is
brought against an Indemnified Party, the Indemnifying Party shall be entitled
to participate in and, unless, in the reasonable judgment of any Indemnified
Party, a conflict of interest between such Indemnified Party and any
Indemnifying Party exists with respect to such claim, to assume the defense
thereof, jointly with any other Indemnifying Party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
Indemnified Party, and after notice from the Indemnifying Party to such
Indemnified Party of its election so to assume the defense thereof, the
Indemnifying Party shall not be liable to such Indemnified Party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation; PROVIDED that the
Indemnified Party may participate in such defense at the Indemnified Party's
expense; and PROVIDED FURTHER that the Indemnified Party or Indemnified Parties
shall have the right to employ one counsel to represent it or them if, in the
reasonable judgment of the Indemnified Party or Indemnified Parties, it is
advisable for it or them to be represented by separate counsel by reason of
having legal defenses which are different from or in addition to those available
to the Indemnifying Party, and in that event the reasonable fees and expenses of
such one counsel shall be paid by the Indemnifying Party. If the Indemnifying
Party is not entitled to, or elects not to, assume the defense of a claim, it
will not be obligated to pay the fees and expenses of more than one counsel for
the Indemnified Parties with respect to such claim, unless in the reasonable
judgment of any Indemnified Party a conflict of interest may exist between such
Indemnified Party and any other Indemnified Parties with respect to such claim,
in which event the Indemnifying Party shall be obligated to pay the fees and
expenses of such additional counsel for the Indemnified Parties or counsels. No
Indemnifying Party shall consent to entry of any judgment or enter into any
settlement without the consent of the Indemnified Party. No Indemnifying Party
shall be subject to any liability for any settlement made without its consent,
which consent shall not be unreasonably withheld.
(d) CONTRIBUTION. If the indemnity and reimbursement
obligation provided for in any paragraph of this Section 7.06 is unavailable or
insufficient to hold harmless an Indemnified Party in respect of any Losses (or
actions or proceedings in respect thereof) referred to therein, then the
Indemnifying Party shall contribute to the amount paid or payable by the
Indemnified Party as a result of such Losses (or actions or proceedings in
respect thereof) in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party on the one hand and the Indemnified Party on the
other hand in connection with statements or omissions which resulted in such
Losses, as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Indemnifying Party or the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The parties hereto agree that it would not be just
and equitable if contributions pursuant to this paragraph were to be determined
by PRO RATA allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the first
<PAGE> 25
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sentence of this paragraph. The amount paid by an Indemnified Party as a result
of the Losses referred to in the first sentence of this paragraph shall be
deemed to include any legal and other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any Loss which
is the subject of this paragraph.
No Indemnified Party guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from the Indemnifying Party if the Indemnifying Party was not
guilty of such fraudulent misrepresentation.
(e) OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding paragraphs of this Section 7.06 (with appropriate
modifications) shall be given by State Auto Financial and each seller of
Registrable Securities with respect to any required registration or other
qualification of securities under any federal or state law or regulation of any
governmental authority other than the Securities Act. The provisions of this
Section 7.06 shall be in addition to any other rights to indemnification or
contribution which an Indemnified Party may have pursuant to law, equity,
contract or otherwise.
(f) INDEMNIFICATION PAYMENTS. The indemnification required by
this Section 7.06 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or Losses are incurred.
7.07 COVENANTS RELATING TO RULE 144. The Company will file
reports in compliance with the Exchange Act, will comply with all rules and
regulations of the Commission applicable in connection with the use of Rule 144
and take such other actions and furnish such holder with such other information
as such holder may request in order to avail itself of such rule or any other
rule or regulation of the Commission allowing such holder to sell any
Registrable Securities without registration and will, at its expense, forthwith
upon the request of any holder of Registrable Securities, deliver to such holder
a certificate, signed by State Auto Financial's principal financial officer,
stating (a) State Auto Financial's name, address and telephone number (including
area code), (b) State Auto Financial's Internal Revenue Service identification
number, (c) State Auto Financial's Commission file number, (d) the number of
shares of each class of Stock outstanding as shown by the most recent report or
statement published by State Auto Financial, and (e) whether State Auto
Financial has filed the reports required to be filed under the Exchange Act for
a period of at least 90 days prior to the date of such certificate and in
addition has filed the most recent annual report required to be filed
thereunder.
7.08 REFERENCES TO HOLDERS OF REGISTRABLE SECURITIES. For
purposes of this Agreement, references to holders of the Registrable Securities
or holders of a majority of the Registrable Securities shall be deemed to refer
to the pledgee of the Registered Securities under the Pledge and Security
Agreement dated as of August 16, 1996 between the Company and the Administrative
Agent (as modified and supplemented and in effect from time to time, the "PLEDGE
AGREEMENT") for so long as the Pledge Agreement shall remain in effect.
Section 8. MISCELLANEOUS.
8.01 WAIVER. No failure on the part of the either party hereto
to exercise and no delay in exercising, and no course of dealing with respect
to, any right, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.
<PAGE> 26
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8.02 NOTICES. All notices, requests and other communications
provided for herein shall be given or made in writing (including, without
limitation, by telecopy) delivered to the intended recipient at the "Address for
Notices" specified below its name on the signature pages hereof or, as to any
party, at such other address as shall be designated by such party in a notice to
each other party. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
telecopier or personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid.
8.03 AMENDMENTS, ETC. Except as otherwise expressly provided
in this Agreement and subject to the Credit Agreement and the Put Agreement, any
provision of this Agreement may be modified or supplemented only by an
instrument in writing signed by each State Auto Financial and the Company (with
the consent of the Administrative Agent and the Lenders as specified in the
Credit Agreement), and any provision of this Agreement may be waived by the
Company (with the consent of the Administrative Agent and the Lenders as
specified in the Credit Agreement).
8.04 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, PROVIDED, that State Auto Financial may not
assign any of its rights or obligations hereunder without the prior consent of
the Company (with the consent of the Administrative Agent and all of the
Lenders).
8.05 CAPTIONS. The captions and section headings appearing
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
8.06 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
8.07 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement
shall be governed by, and construed in accordance with, the law of the State of
New York. Each of State Auto Financial and the Company hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of the Supreme Court of the State of New York sitting
in New York County (including its Appellate Division), and of any other
appellate court in the State of New York, for the purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby. Each of State Auto Financial and the Company hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
objection that it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.
8.08 WAIVER OF JURY TRIAL. EACH OF STATE AUTO FINANCIAL AND
THE COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
8.09 FURTHER ASSURANCES. State Auto Financial agrees that,
from time to time upon the written request of the Administrative Agent, State
Auto Financial will execute and deliver such further documents and do such other
acts and things as the Company, the Administrative Agent or any Lender
<PAGE> 27
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(through the Administrative Agent) may reasonably request in order fully to
effect the purposes of this Agreement.
8.10 PAYMENTS BY STATE AUTO FINANCIAL. The Company hereby
instructs State Auto Financial to make any payments required to be made by State
Auto Financial hereunder or otherwise in respect of the Class A Preferred Stock
(including, without limitation, any amounts payable upon any redemption of the
Class A Preferred Stock, any dividends payable on the Class A Preferred Stock
and the commitment fee payable under Section 2.03 hereof) directly to the
Administrative Agent, for the benefit of the Lenders. Each such payment shall be
made by State Auto Financial in accordance with the provisions of the Credit
Agreement.
8.11 PAYMENTS RECEIVED BY THE COMPANY UNDER BASIC DOCUMENTS.
Any amounts paid to the Company under any of the Basic Documents (other than the
proceeds of the Loans made under the Credit Agreement) shall be applied as
directed by State Auto Financial.
8.12 THIRD-PARTY BENEFICIARIES. Each of State Auto Financial
and the Company agrees that the Administrative Agent and each Lender shall be
third-party beneficiaries of this Agreement and shall be entitled to enforce its
respective rights hereunder as fully as if it were a party hereto.
8.13 SEVERABILITY. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(a) the other provisions hereof shall remain in full force and effect in such
jurisdiction in order to carry out the intentions of the parties hereto as
nearly as may be possible and (b) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
STATE AUTO FINANCIAL CORPORATION
By /S/ Robert H. Moone
------------------------------
Title: President
Address for Notices:
State Auto Financial Corporation
518 East Broad Street
Columbus, Ohio 43215
Attention: John Lowther, Esq.
Telecopier No.: 614-464-4911
Telephone No.: 614-464-5052
SAF FUNDING CORPORATION
<PAGE> 28
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By_________________________
Title:
Address for Notices:
SAF Funding Corporation
2 Wall Street
New York, New York 10005
Attention: Kevin Burns
Telecopier No.: 212-346-9012
Telephone No.: 212-346-9007
<PAGE> 29
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SCHEDULE I
Part A
- ------
[Equity Rights]
Part B
- ------
[Redemption Obligations]
<PAGE> 30
- 29 -
EXHIBIT A to the
Standby Purchase Agreement
[Form Class A Preferred Stock Certificate]
<PAGE> 31
- 30 -
[Front of Class A Preferred Stock Certificate]
CERTIFICATE
NUMBER SHARES
- ----------- ------
___________ ______
STATE AUTO FINANCIAL CORPORATION
Incorporated under the laws
of the State of Ohio
CUSIP ___________
SEE REVERSE SIDE FOR CERTAIN TRANSFER
RESTRICTIONS AND OTHER IMPORTANT INFORMATION
This is to Certify that ________________________ is the owner of
________________________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF
CLASS A PREFERRED STOCK NO PAR VALUE OF
State Auto Financial Corporation
transferrable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed.
WITNESS, the seal of the Corporation and the signatures of its duly authorized
officers.
DATED
--------------------------------------
<PAGE> 32
-31-
Chief Executive Officer
- ---------------- -----------------------------
Secretary President
<PAGE> 33
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[Reverse of Class A Preferred Stock Certificate]
STATE AUTO FINANCIAL CORPORATION
The Corporation will furnish upon request and without charge to each
shareholder the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock series within a class of
stock of the Corporation, as well as the qualifications, limitations and
restrictions relating to the those preferences and/or rights.
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED AND SOLD ONLY IF
REGISTERED PURSUANT TO THE PROVISIONS OF SAID SECURITIES ACT OR IF AN EXEMPTION
FROM REGISTRATION IS AVAILABLE.
In addition, the shares evidenced by this certificate are subject to
the restrictions on transfer set forth in the Terms and Conditions attached
hereto.
<PAGE> 34
- 33 -
TERMS AND CONDITIONS
of
CLASS A PREFERRED STOCK
of
STATE AUTO FINANCIAL CORPORATION
------------------------------------------------------------
Pursuant to Section 1701.14 of the
Ohio Corporation Law
------------------------------------------------------------
Section 1. GENERAL.
The certificate to which these Terms and Conditions are
attached represents one or more shares of CLASS A PREFERRED STOCK, no par value
(the "Class A Preferred Stock"), of State Auto Financial Corporation, an Ohio
corporation (the "CORPORATION"). The stated value and liquidation preference per
share of the Class A Preferred Stock shall be equal to $1,000,000 (the
"REDEMPTION VALUE").
Section 2. DEFINITIONS.
Capitalized terms used herein shall have the meanings set
forth in this SECTION 2:
"APPLICABLE REDEMPTION DATE" means, with respect to any shares
of Class A Preferred Stock, each of the 3rd, 5th, 7th, 9th, 11th, 13th, 15th,
17th, 19th, 21st, 23rd and 25th Quarterly Dates immediately following the date
of issuance of such shares of Class A Preferred Stock.
"BOARD OF DIRECTORS" means the Board of Directors of the
Corporation.
"BUSINESS DAY" shall mean any day on which (a) commercial
banks are not authorized or required to close in New York City and (b) (prior to
the Rate Conversion Date) dealings in Dollar deposits are carried out in the
London interbank market.
"BY-LAWS" means the Code of Regulations of the Corporation, as
amended or restated from time to time.
<PAGE> 35
- 34 -
"CERTIFICATE OF INCORPORATION" means the Articles of
Incorporation of the Corporation, as amended or restated from time to time.
"CHASE" means The Chase Manhattan Bank and any successor
entity.
"CLASS A PREFERRED STOCK" has the meaning assigned to such
term in Section 1 hereof.
"CLASS B PREFERRED STOCK" means all Class B Preferred Stock,
no par value, issued by the Corporation.
"COMMON STOCK" means all common stock, of any series and of
any par value or no par value issued by the Corporation.
"CORPORATION" means State Auto Financial Corporation, an Ohio
corporation.
"CREDIT AGREEMENT" means the Credit Agreement dated as of
August 16, 1996 between SAF Funding, the Lenders party thereto and Chase, as
Administrative Agent, as modified and supplemented and in effect from time to
time, a copy of which is maintained on file in the Principal Corporate Office.
"DIVIDEND RATE" means, for each Eurodollar Rate Period
relating to any Class A Preferred Stock, the Eurodollar Rate for such Eurodollar
Rate Period PLUS 3/4 of 1% per annum; PROVIDED, that from and after the Rate
Conversion Date, the "Dividend Rate" means a rate per annum equal to 8%.
"DOLLARS" and "$" mean lawful money of the United States of
America.
"EURODOLLAR BASE RATE" means, with respect to any shares of
Class A Preferred Stock for any Eurodollar Rate Period therefor, the rate per
annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) quoted by Chase
at approximately 11:00 a.m. London time (or as soon thereafter as practicable)
on the date two Business Days prior to the first day of such Eurodollar Rate
Period for the offering by Chase to leading banks in the London interbank market
of Dollar deposits having a term comparable to such Eurodollar Rate Period and
in an amount comparable to the aggregate Redemption Value of such shares of
Class A Preferred Stock.
"EURODOLLAR RATE" means, for any shares of Class A Preferred
Stock for any Eurodollar Rate Period therefor, a rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) determined by Chase (and
advised to the Holder and the Corporation) to be equal to the Eurodollar Base
Rate for a Loan in a principal amount equal to the aggregate Redemption Value
for such shares of Class A Preferred Stock for such Eurodollar Rate Period
divided by 1 minus the Reserve Requirement (if any) for such Loan for such
Eurodollar Rate Period.
"EURODOLLAR RATE PERIOD" means, with respect to any shares of
Class A Preferred Stock, each period commencing on the date such Class A
Preferred Stock is issued or (in the case of a continuation of one Eurodollar
Rate Period to the next) the last day of the next preceding Eurodollar Rate
Period for such Class A Preferred Stock and ending on the numerically
corresponding day in the third
<PAGE> 36
- 35 -
calendar month thereafter, except that each Eurodollar Rate Period that
commences on the last Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent calendar
month. Notwithstanding the foregoing: (a) no Eurodollar Rate Period may commence
before and end after any Applicable Redemption Date unless, after giving effect
thereto, the aggregate Redemption Value of shares of Class A Preferred Stock
having Eurodollar Rate Periods that end after such Applicable Redemption Date
shall be equal to or less than the aggregate Redemption Value of shares of Class
A Preferred Stock scheduled to be outstanding after giving effect to the
redemption payments required to be made on such Applicable Redemption Date; and
(b) each Eurodollar Rate Period that would otherwise end on a day that is not a
Business Day shall end on the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next succeeding calendar month, on the next
preceding Business Day); and (c) notwithstanding clause (a) above, no Eurodollar
Rate Period shall have a duration of less than three months.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, PROVIDED that (a) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day and (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate charged to Chase on such Business Day on such
transactions as determined by Chase.
"HOLDER" means SAF Funding or any subsequent holder of shares
of Class A Preferred Stock.
"LOANS" means the Loans made to SAF Funding under the Credit
Agreement.
"PERSON" means any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a corporation, a
partnership, a trust, a limited liability company or other entity.
"PRINCIPAL CORPORATE OFFICE" means the principal corporate
office of the Corporation located at 518 East Broad Street, Columbus, Ohio
43215.
"QUARTERLY DATES" means the last Business Day of March, June,
September and December in each year, the first of which shall be the last
Business Day of September, 1996.
"RATE CONVERSION DATE" shall mean the first date upon which
the Holder is a person or entity other than any of SAF Funding, State Automobile
Mutual Insurance Company, an Ohio mutual insurance company, any Lender party to
the Credit Agreement or the Administrative Agent under the Credit Agreement.
"REDEMPTION VALUE" has the meaning assigned to such term in
Section 1 hereof.
"RESERVE REQUIREMENT" has the meaning assigned to such term in
the Credit Agreement.
<PAGE> 37
- 36 -
"SAF FUNDING" means SAF Funding Corporation, a Delaware
corporation.
"SECRETARY" means the Secretary of the Corporation.
"TRIGGER EVENT" means the occurrence of (a) any "Event of
Default" described in the Credit Agreement (other than those events described in
Sections 9(e) or (f) thereof) and the acceleration of the Loans thereunder; or
(b) an "Event of Default" described in Sections 9(e) or (f) of the Credit
Agreement.
Section 3. DIVIDENDS AND DISTRIBUTIONS.
(a) The Holder, in preference to the holders of shares of
Class B Preferred Stock and the holders of shares of Common Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds of the Corporation legally available for the payment of dividends,
dividends at the Dividend Rate on the Redemption Value of each share, payable in
arrears in cash. Accrued dividends on the Class A Preferred Stock shall be
payable on the last day of each Eurodollar Rate Period for the applicable Class
A Preferred Stock and upon the redemption of any Class A Preferred Stock (but
only on the aggregate Redemption Value of the Class A Preferred Stock so
redeemed), PROVIDED that after the Rate Conversion Date, said dividends shall be
payable quarterly on the last Business Day of March, June, September and
December of each year.
(b) Dividends payable with respect to any share of Class A
Preferred Stock shall begin to accrue and be cumulative from the date issuance
of such Class A Preferred Stock (whether or not such dividends have been
declared and whether or not there shall be net profits or net assets of the
Corporation legally available for the payment of such dividends). Dividends paid
on the shares of Class A Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated PRO RATA on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of Holder entitled to receive payment of a dividend declared thereon, which
record date shall be no more than thirty (30) days prior to the date fixed for
the payment thereof.
(c) The Holder shall not be entitled to receive any dividends
or other distributions except as provided in these Terms and Conditions.
(d) Whenever (i) any dividend payable pursuant to paragraph
(a) of this Section 3 has not been paid when due, thereafter and until all
accrued and unpaid dividends payable pursuant to paragraph (a) of this Section 3
have been paid in full or (ii) the Corporation shall not have redeemed shares of
Class A Preferred Stock on the date such redemption is required pursuant to
Section 5 hereof, thereafter and until such redemption payment shall have been
made the Corporation shall not (A) declare or pay dividends on any shares of
Class B Preferred Stock or Common Stock or make any other distributions on any
shares of Class B Preferred Stock or Common Stock, whether upon liquidation,
redemption or otherwise; or (B) redeem or purchase or otherwise acquire for
consideration any shares of Class B Preferred Stock or Common Stock, whether
upon liquidation, redemption, or otherwise.
<PAGE> 38
- 37 -
Section 4. VOTING RIGHTS.
Except as provided in the Certificate of Incorporation, and
except for any voting rights provided by law, the Holder shall have no voting
rights and its consent shall not be required for the taking of any corporate
action.
Section 5. REDEMPTION.
(a) On each of the first eleven Applicable Redemption Dates
for any shares of Class A Preferred Stock the Corporation shall redeem, without
prior notice to the Holder, out of funds legally available therefor, one-twelfth
of the number of shares of Class A Preferred Stock issued on the date of
issuance of such shares of Class A Preferred Stock, by paying to the Holder the
aggregate Redemption Value for such Class A Preferred Stock so redeemed plus any
accrued but unpaid dividends thereon. On the twelfth Applicable Redemption Date
for such shares of Class A Preferred Stock the Corporation shall redeem, without
prior notice to the Holder, out of funds legally available therefor, the balance
of the number of shares of Class A Preferred Stock issued on such date of
issuance, by paying to the Holder the aggregate Redemption Value for such Class
A Preferred Stock so redeemed plus any accrued but unpaid dividends thereon.
(b) Upon the occurrence and during the continuance of any
Trigger Event, the Holder may require the Corporation to redeem out of funds of
the Corporation legally available therefor, all or any portion of the Class A
Preferred Stock for a redemption price equal to the aggregate Redemption Value
for the Class A Preferred Stock so redeemed plus any accrued but unpaid
dividends thereon. Upon written notice delivered by the Holder to the President
of the Corporation, such Redemption Value plus such dividends shall be
immediately due and payable.
(c) The Corporation may, by delivering written notice that is
received by the Holder not later than 10:00 a.m. New York time on the third
Business Day prior to the date of the relevant redemption, redeem out of funds
of the Corporation legally available therefor, all or any portion of the Class A
Preferred Stock for a redemption price equal to the aggregate Redemption Value
for the Class A Preferred Stock so redeemed plus any accrued but unpaid
dividends thereon.
(d) From and after the date of a redemption, unless default
shall be made by the Corporation in providing for the payment of the aggregate
Redemption Value for the Class A Preferred Stock so redeemed plus accrued but
unpaid dividends thereon, all dividends on the Class A Preferred Stock so
redeemed shall cease to accrue, and from and after the date of redemption so
specified, unless default shall be made by the Corporation as aforesaid, all
rights of the Holder with respect to such shares, except the right to receive
such Redemption Value and dividends, shall cease and terminate.
Section 6. REACQUIRED SHARES.
Any shares of Class A Preferred Stock redeemed, purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition
<PAGE> 39
- 38 -
thereof and shall be restored to the status of authorized but unissued shares of
Class A Preferred Stock of the Corporation and may thereafter be issued. Upon
any redemption pursuant to Section 5 hereof of a fractional number of shares of
Class A Preferred Stock, the Corporation shall reissue to the Holder Class A
Preferred Stock having an aggregate Redemption Value equal to the $1,000,000
multiplied by the sum of 1 MINUS such fractional number.
Section 7. LIQUIDATION, DISSOLUTION OR WINDING UP.
In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the Holder shall be entitled
to receive out of the assets of the Corporation available for distribution to
its stockholders an amount equal to the Redemption Value per share plus all
accrued and unpaid dividends thereon to the date of such payment, and no
distribution shall be made (i) to the holders of shares of Common Stock, the
Class B Preferred Stock or any other capital stock of the Corporation unless
prior thereto the Holder shall have received an amount equal to the Redemption
Value per share plus all accrued and unpaid dividends thereon, to the date of
such payment.
Section 8. RANK.
The Class A Preferred Stock shall rank as to dividends and
distribution of assets prior to the Class B Preferred Stock, the Common Stock
and all other shares of stock of the Corporation.
Section 9. PAYMENTS.
Except to the extent otherwise provided herein, all payments
to be made by the Corporation in respect of the Class A Preferred Stock shall be
made in Dollars, in immediately available funds, without deduction, set-off or
counterclaim, to the Holder at an account designated by the Holder, not later
than 12:00 p.m. New York time on the date on which such payment shall become due
(each such payment made after such time on such due date to be deemed to have
been made on the next succeeding Business Day). If the due date of any payment
hereunder would otherwise fall on a day that is not a Business Day, such date
shall be extended to the next succeeding Business Day, and dividends shall be
payable on the aggregate Redemption Value of any shares of Class A Preferred
Stock for the period of such extension.
Section 10. FISCAL YEAR.
The Corporation will not change the last day of its fiscal
year from December 31 of each year.
<PAGE> 40
- 39 -
EXHIBIT B to the
Standby Purchase Agreement
[Form of Purchase Notice]
[Date]
SAF Funding Corporation
Re: Standby Purchase Agreement dated as of August 16,
1996, among State Auto Financial Corporation and SAF
Funding Corporation (as modified and supplemented and
in effect from time to time, the "STANDBY PURCHASE
AGREEMENT").
Ladies and Gentlemen:
Reference is made to the Standby Purchase Agreement referred
to above. Capitalized terms used but not defined herein shall have the
respective meanings assigned to such terms in the Standby Purchase Agreement.
Pursuant to Section 2.02 of the Standby Purchase Agreement,
State Auto Financial hereby notifies you that it intends to sell to you _____
shares of Class A Preferred Stock with an aggregate Redemption Value of
$_____________(1) on ______________, 199_(2).
STATE AUTO FINANCIAL CORPORATION
By_________________________
Title:
- --------
1 Insert an amount at least equal to $10,000,000 or a larger multiple of
$1,000,000.
2 Insert a date falling on or after the fourth Business Day following the
date of this Purchase Notice.
<PAGE> 41
- 40 -
EXHIBIT C to the
Standby Purchase Agreement
[Form of Opinion of General Counsel of State Auto Financial]
__________, 199_
SAF Funding Corporation (the "Company")
To The Chase Manhattan Bank,
as ADMINISTRATIVE AGENT (the
"Administrative Agent") under, and
each of the Lenders party to, the
Credit Agreement dated as of
August 16, 1996 among the Company, the
Administrative Agent and such Lenders
Ladies and Gentlemen:
I am the general counsel of State Auto Financial Corporation
("STATE AUTO FINANCIAL) and have acted as counsel to State Auto Financial in
connection with the Standby Purchase Agreement dated as of August 16, 1996 (the
"STANDBY PURCHASE AGREEMENT") among State Auto Financial and the Company,
pursuant to which the Company has agreed to purchase, from time to time, a
certain number of shares of State Auto Financial's Class A Redeemable Preferred
Stock, no par value per share (the "CLASS A PREFERRED STOCK"). This opinion
letter is delivered to you pursuant to Section 3(b) of the Standby Purchase
Agreement in connection with the proposed issuance and sale by State Auto
Financial, and the purchase by the Company, on the date hereof, of _____ shares
of the Class A Preferred Stock (the "PURCHASED STOCK").
In rendering the opinions expressed below, I have examined the
following agreements, instruments and other documents:
(a) the Standby Purchase Agreement;
(b) certificates evidencing the Purchased Stock (the "PURCHASED
STOCK CERTIFICATES"); and
(c) such records of State Auto Financial and such other documents
as I have deemed necessary as a basis for the opinions
expressed below.
In my examination, I have assumed the genuineness of all
signatures, the authenticity of all documents submitted to me as originals and
the conformity with authentic original documents of all documents submitted to
me as copies. When relevant facts were not independently established, I have
<PAGE> 42
- 41 -
relied upon certificates of governmental officials and appropriate
representatives of State Auto Financial and upon representations made in or
pursuant to the Standby Purchase Agreement.
Based upon and subject to the foregoing and subject also to
the comments and qualifications set forth below, and having considered such
questions of law as I have deemed necessary as a basis for the opinions
expressed below, I am of the opinion that:
1. State Auto Financial is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Ohio.
2. State Auto Financial has all requisite corporate power and
authority to issue and sell the Purchased Stock and execute and deliver
the Purchased Stock Certificates.
3. The issuance and sale of the Purchased Stock to the Company
and execution and delivery by State Auto Financial of the Purchased
Stock Certificates have been duly authorized by all necessary corporate
action on the part of State Auto Financial.
4. The Purchased Stock Certificates have been duly executed
and delivered by State Auto Financial.
5. No authorization, approval or consent of, and no filing or
registration with, any governmental or regulatory authority or agency
of the United States of America or the State of Ohio (other than any
authorizations, approvals, consents, filings and registrations
heretofore duly made or obtained and in full force and effect) is
required on the part of State Auto Financial for issuance and sale of
the Purchased Stock to the Company and the execution and delivery of
the Purchased Stock Certificates.
6. The issuance and sale of the Purchased Stock to the Company
and the execution and delivery of the Purchased Stock do not and will
not (a) violate any provision of the Articles of Incorporation or Code
of Regulations of State Auto Financial, (b) violate any applicable law,
rule or regulation of the United States of America or the State of
Ohio, (c) violate any order, writ, injunction or decree of any court or
governmental authority or agency or any arbitral award applicable to
State Auto Financial of which I have knowledge (after due inquiry) or
(d) result in a breach of, constitute a default under, require any
consent under, or result in the acceleration or required prepayment of
any indebtedness pursuant to the terms of, any agreement or instrument
of which I have knowledge (after due inquiry) to which such State Auto
Financial or any of its Subsidiaries is a party or by which any of them
is bound or to which any of them is subject, or result in the creation
or imposition of any Lien upon any Property of State Auto Financial or
any of its Subsidiaries pursuant to the terms of any such agreement or
instrument.
7. The Purchased Shares are validly issued and outstanding,
are fully paid and non-assessable and have, and entitle the holders
thereof to, the relative rights and preferences set forth with respect
to the Class A Preferred Stock in the Purchased Stock Certificates.
<PAGE> 43
- 42 -
8. I have no knowledge (after due inquiry) of any legal or
arbitral proceedings, or any proceedings by or before any governmental
or regulatory authority or agency, now pending or threatened against or
affecting State Auto Financial or any of its Property that, if
adversely determined, could have a Material Adverse Effect (excluding
any Material Adverse Change resulting from the catastrophic loss claims
and/or loss adjustment expenses to which the issuance of the Purchased
Stock relates).
The foregoing opinions are limited to matters involving the
Federal laws of the United States of America and the law of the State of Ohio,
and I do not express any opinion as to the laws of any other jurisdiction. The
opinions contained in this letter are rendered only as of the date hereof
and I undertake no obligation to update this letter or the opinions contained
herein after the date hereof. The opinions contained in this letter only
constitute my professional judgment as to the consequences of and the
applicability of certain laws to the documents and agreements referred to and
the parties thereto and should not be considered to be a guarantee of any
particular result.
At the request of my clients, this opinion letter is provided
to you by me in my capacity as counsel to State Auto Financial, and this opinion
letter may not be relied upon by any Person for any purpose other than in
connection with the transactions contemplated by the Basic Documents without, in
each instance, my prior written consent.
Very truly yours,
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATE AUTO
FINANCIAL CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE INTERIM PERIOD
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 279,942,482
<DEBT-CARRYING-VALUE> 91,782,988
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 371,725,470
<CASH> 13,854,826
<RECOVER-REINSURE> 6
<DEFERRED-ACQUISITION> 16,515,138
<TOTAL-ASSETS> 441,906,647
<POLICY-LOSSES> 159,452,429
<UNEARNED-PREMIUMS> 90,260,664
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 90,433,560
0
0
<OTHER-SE> 85,350,065
<TOTAL-LIABILITY-AND-EQUITY> 441,906,047
179,035,250
<INVESTMENT-INCOME> 17,866,113
<INVESTMENT-GAINS> 1,292,268
<OTHER-INCOME> 6,004,448
<BENEFITS> 133,475,120
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 49,853,526
<INCOME-PRETAX> 18,878,098
<INCOME-TAX> 4,760,836
<INCOME-CONTINUING> 14,117,262
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,117,262
<EPS-PRIMARY> .78
<EPS-DILUTED> .78
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
